Federal Tax Liens

Definition of a Federal Tax Lien

A federal tax lien is a security interest or claim on a taxpayer’s property that is established by statute and by itself does not transfer title or possession of the debtor’s property, but allows the IRS to avail itself of the lien in the event of a default under state law. See Welsh v. U.S., 220 F.2d 200 (1955); U.S. v . Phillips, 267 F.2d 374 (1959); In re Raihl, 152 B.R. 615 (1993); U.S. v. Diemer, 859 F. Supp. 126 (1994).

When does a Tax Lien Arise?

A tax lien automatically arises at the time of assessment until the tax debt that gave rise to the lien is satisfied or unenforceable. See IRC §6322. The lien is valid against all real and personal property that belongs to the taxpayer. See IRC §6321.

Notice of a Tax Lien

An IRS lien is known as a secret lien until such time as the IRS files a notice of the tax lien that informs the world of its existence pursuant to IRC §6323(f)(1)(A).  The notice must generally be filed in accordance with state law, as it is state law that governs property rights. The IRS files a notice of tax lien to ensure its validity against future buyers, or holders of other security interest such as a mechanic’s lien, or judgment creditor. Behling v. Commissioner, 118 T.C. 572, 575 (2002.).

Procedural Requirements when the IRS Files a Notice of a Federal Tax Lien

Within five days after the IRS files a notice of tax lien they must send the taxpayer a notice by either personal delivery or certified mail informing them of its filing of the notice of tax lien.  This notice must also inform the taxpayer of the amount of unpaid tax and their right to file for a collection due processing hearing. See IRC §6320(a).

Collection Due Process Hearing

During a collection due process hearing (“CDP hearing”) a taxpayer is entitled to raise the following issues:

A CDP hearing suspends the statute of limitations on collections because while the CDP hearing is pending, the IRS is unable to pursue collection activity.  As such, if a taxpayer files a CDP hearing it allows the IRS to continue to pursue collections beyond the traditional 10 years. See IRC §6320(c). If a taxpayer receives a negative determination from a CDP hearing they have the right to petition the tax court for review. The taxpayer has 30 days after the negative determination to petition the tax court for reconsideration.

Equivalent Hearing

A taxpayer has one year and five days after the IRS files a notice of a federal tax lien to request an equivalent hearing.   This hearing is similar in nature to a CDP hearing, except that the statute of limitations is not suspended and the taxpayer has no right to petition the tax court for review.