
[ Back ] We Can Help With Your Tax Problems! IRS LIENS AND LEVIES What is a lien? A lien is a claim on another's property for the payment or satisfaction of a debt, obligation or duty. IRS tax liens are created by federal statute rather than by civil judgments or recorded lender/debtor agreements. IRS tools for collection actions against tax debtors are unlike that of any other creditor. Lenders and successful plaintiffs must obtain judicial orders for seizure of debtor assets. Federal statutes authorize IRS seizure authority. The IRS process is speedy and immensely effective. What is a federal tax lien? The general tax lien, often called a "statutory tax lien", is the basis of all enforced IRS collection actions. A lien is not a levy. The federal "statutory tax lien" is the basis which eventually allows the Internal Revenue Service to issue a levy upon a taxpayer's property. The Notice of Federal Tax Lien, filed in a county Recorder's Office, is not a levy or a "statutory tax lien". It is a lien on property situated in the county of lien filing. Credit bureaus also review county lien filings for credit worthiness. The issuance of the "statutory tax lien" is governed by Code Section 2321, 2322 and 6303. Under Code Section 6321, a "statutory tax lien" arises automatically upon the assessment of federal tax. Again, it is not the same as that which is represented by the formal filing of "Notice of Tax Lien" with a County Recorder. A basic understanding of the mechanics of a tax assessment is helpful in understanding liens. A tax assessment is the recording of a taxpayer's tax liability upon IRS records. This is an official act accomplished when an assessment officer at an IRS Service Center signs "Form 23-C" also called the "assessment certificate". The 23-C date is a very important date for IRS collection matters. The 23-C date is the date that a "statutory tax lien" arises against a taxpayer as well as the starting date for the running of the 10 year collection statute of limintations. At this point, even though an actual notice of lien has not been filed in a county Recorder's Office, the tax assessment has created a valid tax lien (assessment). The relevant Code Section (6321) creates this "statutory tax lien" upon all of the taxpayer's property which, in time, becomes the IRS authority for bank levies and wage garnishments. We will now turn our attention to the document called the "Notice of Federal Tax Lien". This is a document (Form 668) which is filed by an IRS Revenue Officer in the county of the taxpayer's residence and/or the county of the taxpayer's business. This is a notice to the world of individual or business tax problems. It is the "Notice of Federal Tax Lien" that most taxpayers consider as the federal tax lien. But, as discussed above, an initial tax lien is established earlier on the 23-C date at the time of the official tax assessment which is the beginning point for establishing levy authority. The "Notice of Federal Tax Lien", on the other hand, is the lien which is reported by credit bureaus. It is also a secured lien on the taxpayer's real estate in the county of filing. A taxpayer cannot sell or mortgage real estate encumbered by an outstanding "Notice of Federal Tax Lien" without IRS involvement to clear title. The IRS will subordinate their tax lien to new lenders and will issue a Certificate of Lien Discharge so that a taxpayer can sell real estate. Obtaining appropriate IRS paperwork to do these things, on the other hand, always involves dealing with the IRS bureaucracy and usually requires a full or partial payment of the outstanding tax liability. No payment lien releases can be issued in some circumstances. Prior to a "Notice of Federal Tax Lien" being filed in the county recorder's office, three events must occur. A tax assessment must have been made and the "statutory tax lien" must have arisen on IRS Service Center records as discussed above. The taxpayer must be given a written notice of the tax deficiency and a demand for payment must have been made. The taxpayer must have neglected or refused to pay the deficiency amount. Lien law is extremely complicated. Below find information which the reader may find useful: The "statutory tax lien" attaches to all property belonging to the taxpayer on the date of assessment (the 23-C date). The lien also attaches to after acquired property. A federal tax lien does not divest the taxpayer of his property or his rights to transfer property. A lien transfers constructive ownership of equity in the property to the government. Once a "statutory tax lien" exists, the IRS need only send the taxpayer a registered letter of notice enabling the IRS to levy upon and seize the taxpayer's assets or levy his wages. A 30 day grace period for the payment of the tax is reflected in the "notice of intent to levy". A taxpayer is also entitled to a hearing (IRC 6630) before any levy can be issued. This right is outlined in the "Right to Hearing" registered letter. The timeframe between the "statutory lien" date and the levy authority letter can vary considerably - from four months to several years. Taxpayers are cautioned to read IRS "registered" mail very carefully as these letters spell out taxpayer rights. Once a statutory tax lien exists, the government becomes the taxpayer's secured creditor. The government is entitled to payment before general and unsecured creditors even in a bankruptcy setting. After a Revenue Officer files a "Notice of Federal Tax Lien" purchasers of a taxpayer's property do so at their own peril unless they fall into categories of super-priority or other exemptions. For example, taxpayers may transfer automobiles to third parties who have no knowledge of the public tax lien filing, with that third party receiving a valid title to the vehicle. Not so with real estate transfers. The filing of a "Notice of Federal Tax Lien" will negatively impact the taxpayer's credit rating. The Notice of Federal Tax Lien interferes with the transfer of most property to which a paper title is necessary (real estate and tangible personal property subject to recorded security agreements and UCC filings). Federal tax liens are not valid against prior mortgage holders, holders of security interests, mechanic's lien creditors and judgment lien creditors unless the "Notice of Federal Tax Lien" was recorded in the county prior to their lien. Once the "Notice of Federal Tax Lien" has been filed, it constitutes notice to these creditors that the lien exists and that future property transfers by the taxpayer continue to be burdened by the tax lien. One exception to this rule is that purchase money lenders/mortgagees (financing the purchase of newly acquired real estate) obtain a superior lien to that of the IRS even though a "Notice of Federal Tax Lien" was filed previous to the purchase. On the other hand, lenders providing fresh money on a refinancing or equity loan on existing property will not have a priority over the IRS if a Notice of Tax Lien is in place at the time of the refinancing. The IRS does have lien subordination procedures which can provide a new lender (post lien) with priority over the federal tax lien. There are no specific statutory guidelines governing the filing of the "Notice of Federal Tax Lien". Provisions of the Internal Revenue Manual control the filing of liens. Revenue Officers have discretion in filing or not filing liens. The filing of a "Notice of Federal Tax Lien" is not a prerequisite to the IRS seizure of salary and wages and bank accounts in the hands of third parties. The 30 day registered letter (notice of intent to levy with a right to hearing) and prior existence of a statutory tax lien are the prerequisitesfor such seizures. The Automated Collections System (ACS) branch of the IRS may also record a "Notice of Federal Tax Lien" in the county of a taxpayer residence. Generally speaking, the notice will be filed in cases of tax deficiencies exceeding $10,000 or will be automatically filed if the taxpayer has defaulted on an installment agreement. Prior to the enactment of the Restructuring and Reform Act of 1998, Revenue Officers and ACS personnel had complete freedom to record notices of federal tax liens. With the 1998 Tax Reform Act, however, collection personnel must secure a supervisor's approval prior to issuing either a "Notice of Federal Tax Lien" or a levy based upon the "statutory tax lien". [ Back ]

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We Can Help With Your Tax Problems!

IRS LIENS AND LEVIES

What is a lien? A lien is a claim on another's property for the payment or satisfaction of a debt, obligation or duty. IRS tax liens are created by federal statute rather than by civil judgments or recorded lender/debtor agreements.

IRS tools for collection actions against tax debtors are unlike that of any other creditor. Lenders and successful plaintiffs must obtain judicial orders for seizure of debtor assets. Federal statutes authorize IRS seizure authority. The IRS process is speedy and immensely effective.

What is a federal tax lien? The general tax lien, often called a "statutory tax lien", is the basis of all enforced IRS collection actions. A lien is not a levy. The federal "statutory tax lien" is the basis which eventually allows the Internal Revenue Service to issue a levy upon a taxpayer's property. The Notice of Federal Tax Lien, filed in a county Recorder's Office, is not a levy or a "statutory tax lien". It is a lien on property situated in the county of lien filing. Credit bureaus also review county lien filings for credit worthiness.

The issuance of the "statutory tax lien" is governed by Code Section 2321, 2322 and 6303. Under Code Section 6321, a "statutory tax lien" arises automatically upon the assessment of federal tax. Again, it is not the same as that which is represented by the formal filing of "Notice of Tax Lien" with a County Recorder.

A basic understanding of the mechanics of a tax assessment is helpful in understanding liens. A tax assessment is the recording of a taxpayer's tax liability upon IRS records. This is an official act accomplished when an assessment officer at an IRS Service Center signs "Form 23-C" also called the "assessment certificate". The 23-C date is a very important date for IRS collection matters. The 23-C date is the date that a "statutory tax lien" arises against a taxpayer as well as the starting date for the running of the 10 year collection statute of limintations. At this point, even though an actual notice of lien has not been filed in a county Recorder's Office, the tax assessment has created a valid tax lien (assessment). The relevant Code Section (6321) creates this "statutory tax lien" upon all of the taxpayer's property which, in time, becomes the IRS authority for bank levies and wage garnishments.

We will now turn our attention to the document called the "Notice of Federal Tax Lien". This is a document (Form 668) which is filed by an IRS Revenue Officer in the county of the taxpayer's residence and/or the county of the taxpayer's business. This is a notice to the world of individual or business tax problems.

It is the "Notice of Federal Tax Lien" that most taxpayers consider as the federal tax lien. But, as discussed above, an initial tax lien is established earlier on the 23-C date at the time of the official tax assessment which is the beginning point for establishing levy authority. The "Notice of Federal Tax Lien", on the other hand, is the lien which is reported by credit bureaus. It is also a secured lien on the taxpayer's real estate in the county of filing. A taxpayer cannot sell or mortgage real estate encumbered by an outstanding "Notice of Federal Tax Lien" without IRS involvement to clear title. The IRS will subordinate their tax lien to new lenders and will issue a Certificate of Lien Discharge so that a taxpayer can sell real estate. Obtaining appropriate IRS paperwork to do these things, on the other hand, always involves dealing with the IRS bureaucracy and usually requires a full or partial payment of the outstanding tax liability. No payment lien releases can be issued in some circumstances.

Prior to a "Notice of Federal Tax Lien" being filed in the county recorder's office, three events must occur.

A tax assessment must have been made and the "statutory tax lien" must have arisen on IRS Service Center records as discussed above.
The taxpayer must be given a written notice of the tax deficiency and a demand for payment must have been made.
The taxpayer must have neglected or refused to pay the deficiency amount.

Lien law is extremely complicated. Below find information which the reader may find useful:

The "statutory tax lien" attaches to all property belonging to the taxpayer on the date of assessment (the 23-C date). The lien also attaches to after acquired property.
A federal tax lien does not divest the taxpayer of his property or his rights to transfer property. A lien transfers constructive ownership of equity in the property to the government.
Once a "statutory tax lien" exists, the IRS need only send the taxpayer a registered letter of notice enabling the IRS to levy upon and seize the taxpayer's assets or levy his wages. A 30 day grace period for the payment of the tax is reflected in the "notice of intent to levy". A taxpayer is also entitled to a hearing (IRC 6630) before any levy can be issued. This right is outlined in the "Right to Hearing" registered letter. The timeframe between the "statutory lien" date and the levy authority letter can vary considerably - from four months to several years. Taxpayers are cautioned to read IRS "registered" mail very carefully as these letters spell out taxpayer rights.
Once a statutory tax lien exists, the government becomes the taxpayer's secured creditor. The government is entitled to payment before general and unsecured creditors even in a bankruptcy setting.
After a Revenue Officer files a "Notice of Federal Tax Lien" purchasers of a taxpayer's property do so at their own peril unless they fall into categories of super-priority or other exemptions. For example, taxpayers may transfer automobiles to third parties who have no knowledge of the public tax lien filing, with that third party receiving a valid title to the vehicle. Not so with real estate transfers.
The filing of a "Notice of Federal Tax Lien" will negatively impact the taxpayer's credit rating.
The Notice of Federal Tax Lien interferes with the transfer of most property to which a paper title is necessary (real estate and tangible personal property subject to recorded security agreements and UCC filings).
Federal tax liens are not valid against prior mortgage holders, holders of security interests, mechanic's lien creditors and judgment lien creditors unless the "Notice of Federal Tax Lien" was recorded in the county prior to their lien. Once the "Notice of Federal Tax Lien" has been filed, it constitutes notice to these creditors that the lien exists and that future property transfers by the taxpayer continue to be burdened by the tax lien. One exception to this rule is that purchase money lenders/mortgagees (financing the purchase of newly acquired real estate) obtain a superior lien to that of the IRS even though a "Notice of Federal Tax Lien" was filed previous to the purchase.
On the other hand, lenders providing fresh money on a refinancing or equity loan on existing property will not have a priority over the IRS if a Notice of Tax Lien is in place at the time of the refinancing. The IRS does have lien subordination procedures which can provide a new lender (post lien) with priority over the federal tax lien.
There are no specific statutory guidelines governing the filing of the "Notice of Federal Tax Lien". Provisions of the Internal Revenue Manual control the filing of liens. Revenue Officers have discretion in filing or not filing liens.
The filing of a "Notice of Federal Tax Lien" is not a prerequisite to the IRS seizure of salary and wages and bank accounts in the hands of third parties. The 30 day registered letter (notice of intent to levy with a right to hearing) and prior existence of a statutory tax lien are the prerequisitesfor such seizures.
The Automated Collections System (ACS) branch of the IRS may also record a "Notice of Federal Tax Lien" in the county of a taxpayer residence. Generally speaking, the notice will be filed in cases of tax deficiencies exceeding $10,000 or will be automatically filed if the taxpayer has defaulted on an installment agreement.
Prior to the enactment of the Restructuring and Reform Act of 1998, Revenue Officers and ACS personnel had complete freedom to record notices of federal tax liens. With the 1998 Tax Reform Act, however, collection personnel must secure a supervisor's approval prior to issuing either a "Notice of Federal Tax Lien" or a levy based upon the "statutory tax lien".

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Cincinnati Tax Lawyer
4555 Lake Forest Drive Suite 365
Cincinnati, OH 45242

Phone: (513) 563-4555
Fax: (513) 563-9097
E-Mail: tjutaski@cincinnatitaxlawyer.com