The Federal Tax lien Keith Fogg

Lien acquisition The FTL arises upon the occurrence of three events: (1) assessment of federal taxes (2) issuance of notice and demand for payment of the assessed taxes; and (3) failure to pay the taxes after notice and demand

assessment Assessment in this context is a term of art that should be used with care Assessing taxes simply describes the process of recording a liability

Permission to assess Filing of Return Math Error Consent Tax Court – default or decision Restitution

Notice and Demand Section 6303 requires that “as soon as practicable, and within 60 days after the making of an assessment … gives notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof.   Notice shall be left at the dwelling or usual place of business of such person, or shall be sent by mail to such person’s last known address.”

Failure to make notice and demand Does not invalidate notice Prevents formation of lien until issued

Failure to pay If taxpayer fails to pay within 10 days of assessment after proper issuance of notice and demand THEN The federal tax lien comes into existence and relates back the date of assessment

Scope of lien The lien attaches to (1) All property and rights to property, whether real or personal, belonging to such person (2) All after acquired property Supreme Court has said Congress could not have created a broader lien – Drye and Craft

State Law Determines Property Interest Federal Law Determines Priority But Federal Law Determines Priority

Duration of FTL Last until collection statute of limitations expires If IRS obtains a judgment, can last forever

Priority of unperfected lien Section 6323(a) Congress identified four parties who can defeat the unfiled federal lien: (1) holders of a security interest; (2) mechanic’s lienholders; (3) purchasers; and (4) judgment lien creditors

Perfection of lien File Notice in City or County of Taxpayer’s Residence for personal property File Notice in City or County of Taxpayer’s Real Property

Priority of perfected lien General Rule – first in time first in right, but 10 statutory exceptions: (1) Securities (2) Motor vehicles (3) Personal property purchased at retail (4) Personal property purchased in a casual sale (5) Personal property subject to possessory lien (6) Real property tax and special assessment liens (7) Residential property subject to a mechanic’s lien for certain repairs and improvements (8) Attorney’s liens (9) Certain insurance contracts (10) Deposit secured loans

Transferee, nominee, and alter ego situations IRS files placeholder liens to tie up property IRS generally will not take administrative collection action against property subject to these liens because of clouded title but will bring a suit to foreclose its lien

Removing liens Withdrawal Release Discharge Subordination Non-Attachment

Estate tax lien Arises automatically at death IRS does not file the estate tax lien

Federal insolvency statute Generally does not defeat prior liens after Romano case

bankruptcy If IRS has valid notice filed before bankruptcy which attaches to equity in property, it has secured claim in bankruptcy