Federal Tax Liens

Federal Tax LiensEMPOWERED TAX SERVICES, LLC

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The Problem● A Federal tax lien that is filed with the county or state government is available

to the public.● This can impact the taxpayer’s credit rating and business relationships.● It can also prevent the taxpayer from being able to sell or otherwise dispose

of his property.● Taxpayers may not even be aware of the Federal tax lien filing until after the

lien is filed and, in some cases, may not even know that they owe the IRS.


The Cause● The IRS has broad discretion in filing Federal tax liens.● The IRS is not required to provide taxpayers with advance notice that a

Federal tax lien will be filed.● Taxpayers may not receive IRS notices, including lien notices, given the

transient and mobile nature of our society these days or simply because they did not receive the notice in the mail.


Overview of Liens● The term “lien” refers to a legal right to sell property to obtain money. ● A lien is typically reduced to writing and filed with the county or state

governments. This puts others on notice of the lien holder's right to the property.

● A mortgage or deed of trust is an example of a type of lien.● A tax lien is one that arises when a taxpayer fails to pay tax that is due.● State and local governments impose liens for unpaid property and other

taxes. ● The IRS imposes liens for unpaid income, employment, and other taxes.


Federal Tax Liens● The Federal tax lien arises by operation of law after the IRS sends the

taxpayer notice and demand for payment.● The Federal tax lien does not have to be filed with the state or county

governments to be valid. ● Once the lien arises, it attaches to all of the taxpayer’s property. ● The Federal tax lien is valid until it is removed, the underlying taxes are paid,

or the time period for collecting the underlying tax expires.


The Lien Notice● The taxpayer must be notified of the filing of the Federal tax lien.● The notice must be:

○ Given in person,○ Left at the dwelling or usual place of business of such person, or○ Sent by certified or registered mail to such person’s last known address,

not more than five business days after the day of the filing of the lien notice.

● The IRS typically notifies the taxpayer of the lien by mailing a copy of the lien notice to the taxpayer.


Notice Requirements● The Federal tax lien notice must include the following information in simple

and nontechnical terms:○ The amount of unpaid tax,○ The right of the person to request a hearing during the 30-day period,

beginning on the day after the 5-day notice period, ○ The administrative appeals available to the taxpayer with respect to such

lien and the procedures relating to such appeals, and○ The procedures relating to the release of liens on property.

● The IRS lien notice is set out on Form 668(Y), Notice of Federal Tax Lien.


Right to Request a Hearing● The taxpayer has the right to request a hearing upon receipt of the lien notice.● The IRS refers to this hearing as a “collections due process” (CDP) hearing.● The IRS suspends its collections activities during the course of the CDP

hearing.● The taxpayer forfeits his right to a CDP hearing, but the IRS may grant the taxpayer

an “equivalent hearing.”● The primary difference between a CDP hearing and an equivalent hearing is that

the equivalent hearing is not subject to court review and the IRS does not suspend its collections activities during the course of equivalent hearings.


The CDP (or Equivalent) Hearing● The CDP hearing:

○ Is conducted by the IRS Office of Appeals.○ May be in person or over the phone.○ The appeals officer will verify the validity of the tax assessment.○ The appeals officer will also consider non-frivolous issues raised by the

taxpayer.


The CDP (or Equivalent) Hearing● The taxpayer may ask that the following issues be considered during the CDP

hearing:○ Challenges to the existence or amount of the underlying tax liability if the

taxpayer did not did not otherwise have an opportunity to dispute the tax liability,

○ Appropriate spousal defenses, ○ Challenges to the appropriateness of collection actions, and○ Offers of collection alternatives, which may include the posting of a bond,

the substitution of other assets, an installment agreement, or an offer-in-compromise.


The CDP Hearing● The CDP hearing concludes when the IRS lifts the lien or issues a Notice of

Determination sustaining the lien filing.● The taxpayer is entitled to have the courts review the Notice of Determination.


Release of Federal Tax Lien● The IRS is required to release federal tax liens that are filed if:

○ The underlying tax has been paid, ○ The time period for collecting the tax has expired, or○ The taxpayer furnishes a bond that is conditioned upon the payment of

the tax.● If the IRS does not release the lien after receiving proper notice from the

taxpayer, the taxpayer may bring a suit to compel the IRS to release the lien and for actual damages suffered as a result of failure to release the lien.


Withdrawal of Federal Tax Lien● The IRS can withdrawal a Federal tax lien in some cases after it has been

released or after you enter into a direct debit installment agreement.● This removes the public notice of the Federal tax lien and assures that the IRS

is not competing with other creditors for your property.


Discharge of Property from the Lien● The IRS can discharge property from the Federal tax lien :

○ If the fair market value of that part of such property remaining subject to the lien is at least double the amount of (1) the unsatisfied liability secured by the lien and (2) the amount of all other liens upon such property which have priority over such lien,

○ If the property has no value, or○ If part of the property is sold pursuant to an agreement with the IRS and the

proceeds of the sale are to be held, as a fund subject to the liens and claims of the United States, in the same manner and with the same priority as such liens and claims had with respect to the discharged property.


Subordination of the Federal Tax Lien● The term “subordinate” means to lower in position. With Federal tax liens, it

refers to keeping the Federal income tax lien in place, but allowing a lien or liens held by other party(s) to take priority over the Federal tax lien.

● The IRS can subordinate a Federal tax lien if:○ The taxpayer pays the IRS an amount equal to the amount of the lien or

the amount of the lien that is subordinated or○ The IRS believes that the amount realizable by the IRS from the property

to which the lien attaches will ultimately be increased by subordinating the lien and that the ultimate collection of the tax liability will be facilitated by the subordination.


Non-attachment of the Federal Tax Lien● The IRS can issue a certificate of non-attachment if it determines that the

Federal tax lien injures another party, as in the case of confusion of names or otherwise.


Contact Us ● Contact us if you have questions about a Federal tax lien. ● We help taxpayers with IRS audits and other tax problems. ● We can be reached at http://www.irstaxtrouble.com



Disclaimer

These slides are provided for educational purposes only. The laws change frequently and every situation is unique. There is no substitute for hiring a tax advisor to address your particular situation. By accessing these slides, you agree that you have done your own research and reached your own conclusions. Also, be advised that these slides are not and do not provide tax advice. They are not intended to and cannot be used by any taxpayer for (i) the avoidance of penalties that may be imposed by any relevant tax authority, or (ii) for promoting, marketing or recommending the matters discussed herein.

Federal Tax Liens

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