Federal Tax Liens

When does a federal tax lien arise?

When the assessment is made that taxes are due and not paid without any notice to the delinquent taxpayer or anyone else. It is a secret lien until a notice of the lien is recorded in the land records. The lien attaches to all property of the taxpayer at the time of the assessment and any property acquired by the taxpayer subsequently.(26 U.S.C. §6321)

Does the address on the Notice mean that the lien only affects that property?

No. The lien attaches to all property of the taxpayer and only property of the taxpayer. The address on the lien is the taxpayer’s residence address according to the records of the IRS. If the taxpayer’s residence is a month to month rental, then the lien would not affect the address described in the lien except to the extent of the taxpayer’s tenancy.

What about parties dealing with the property of the taxpayer before a notice is filed?

The Internal Revenue Code provides that the lien is not valid as against purchasers, secured lenders, mechanics lien creditors and judgment lien creditors without actual knowledge of the lien who record their interest before the notice of tax lien is filed.(

What is the duration of the lien?

The lien, as opposed to the notice of the lien, continues so long as any portion of the liability remains outstanding. However, the Notice of lien has is only is only effective for a period of ten years and 30 days after the assessment unless extended by refilling. The last date for refilling is shown on the face of the notice of lien and there is language on the notice that failure to refile by the last refilling date operates as a release.

How else can a notice of tax lien be released?

Upon payment of all obligations secured by the lien, the IRS will discharge the lien by a written, recordable discharge. However, do not rely on the Unpaid Balance of Assessment shown on the lien itself because there may be significant penalties and interest that have accrued. The IRS must be consulted to determine the amount of the payoff.

There are also procedures covering for partial releases of specific property or abandonment of the lien as worthless. Again the IRS must be consulted. There is also a procedure where there could be confusion as to the identity of the taxpayer for the IRS to provide a certificate of non-attachment. All of these procedures take time and are completely discretionary with the IRS.

Can a Tax Lien be Foreclosed Out? What rights of Redemption?

While it is impossible in an article of this type to cover the foreclosure processes of 50 states, there are two common elements regarding tax liens that may affect title.

First, notice must be given to the U.S. Government. In a judicial foreclosure that is accomplished by serving the U.S. Attorney for the district with copies by Registered or Certified mail to the Attorney General in Washington. 28 U.S.C. §2410(b). In a non-judicial foreclosure, even in states where local practices may not require notice to subordinate lienholders, a notice of sale must be given, in writing, by registered or certified mail or by personal service, not less than 25 days prior to the sale, to the Advisory group manager, in the Field Collection Area where the sale is to be held. Internal Revenue Manual, § 5.12.4.4 (06-11-2010) 26 U.S.C. §7425(c)(1)). A foreclosure sale made without proper notice may still be subject to the tax lien.

Second, when an IRS lien is eliminated in foreclosure, the IRS has not less than 120 days from the date of sale within which to redeem. Judicial 28 U.S.C. §2410(c), Non-judicial 26 U.S.C. §7425(d)(1).

Steve Winkler 11-12-14

Strict Foreclosure

There is no “sale” in a strict foreclosure, just notice of a date by which s junior lienholder must redeem. The question has been raised whether it is sufficient to give a notice to the IRS under 26 U.S.C. 7425 and IRS Reg 301.7425-3 and that will eliminate the lien, or whether after the strict foreclosure the owner must still seek a Certificate of Release, a Certificate of Discharge of the Property, or a Certificate of Nonattachment from the IRS.

subsection (4) of the IRS Reg 301.7425-3 provides for confirmation of the adequacy of the notice, not just its receipt.

“(4) Disclosure of adequacy of notice. The IRS is authorized to disclose, to any person who has a proper interest, 
whether an adequate notice of sale was given under paragraph (d)(1) of this section. Any person desiring this information 
should submit to the IRS a written request that clearly describes the property sold or to be sold, identifies the applicable 
notice of lien, gives the reasons for requesting the information, and states the name and address of the person making 
the request. The request should be submitted to the IRS official, office and address specified in IRS Publication 4235, 
“Technical Services (Advisory) Group Addresses,” or any successor publication. The relevant IRS publications 
may be downloaded from the IRS Internet site at http://www.irs.gov.”