Procedural Considerations on Collection (Liens) – Part Two: Effect of Tax Lien

As noted in the first article in this series, a federal tax lien is not valid as against any purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor until appropriate notice of the lien has been appropriately filed by the IRS.[1] With respect to real property, the notice of lien must generally be filed only once in the office designated by the laws of the state in which the property subject to the lien is situated.[2]

In the case of personal property, the notice of lien must generally be filed only once in the office designated by the laws of the state in which the property subject to the lien is situated.[3] Property is situated at its physical location or, for personal property, at the residence of the taxpayer at the time the notice of lien is filed.[4]

In the first article in our series on Federal tax liens, we discussed the IRS’s authority, and limits thereto, with regard to imposing and enforcing liens against taxpayers.  In this second article in this series on liens, we discuss the procedure and effect of filing a Federal tax lien. In the third article in this series, we will discuss the release and discharge of a Federal tax lien.

Protection for Certain Interests even though Notice is Filed

Even though a notice of lien has been filed, the lien may not be valid with respect to certain interests in property.[5] These interests include securities, motor vehicles, certain types of personal property, real property tax and special assessment liens, residential property subject to a mechanic’s lien, attorney’s liens, certain life insurance or annuity contracts, and deposit-secured loans.[6] IRC § 6323 also provides protection for commercial transactions, financing agreements, etc.[7]

The Refiling of the Notice of Lien

If the statute of limitation of collection has been tolled for any reason, the IRS must refile the lien prior to the one-year anniversary of the expiration of the 10-year period set forth in IRC § 6502. If the IRS fails to refile, the lien will expire.[8] Importantly, the refiling of the lien doesn’t start the clock anew; rather it extends the lien to the full ten-year period including the period during which the statute of limitation was tolled. For instance, if Bill spent six months negotiating an installment agreement, just to default on his second payment, the refiling of the lien would not give the IRS a full 10-year period in addition to the 9.5 years during which they could have collected.

Special Liens for Estate and Gift Taxes

There is a federal tax lien for the nonpayment of the estate tax imposed by Chapter 11 of the Code, which is a lien upon the gross estate of the decedent for 10 years from the date of death.[9] The part of the gross estate that is used to pay administrative expenses is not included in such lien.[10] If part of the decedent’s estate is transferred, the property is divested of the original lien, and a new lien attaches to the property of the transferee.[11]

The lien continues after the discharge of the personal representative or trustee.[12] A nearly identical lien applies to all gifts made during the period for which the return was filed for 10 years from the date the gifts are made.[13] The liens on estate and gift taxes are not valid against mechanic’s liens or against security interests described in IRC § 6323(e).

In the next article in this series, we’ll explore the release and/or discharge of a Federal tax lien.


[1] IRC § 6323(a).

[2] IRC § 6323(f)(1)(A)(i).

[3] IRC § 6323(f)(1)(A)(ii).

[4] IRC § 6323(f)(2).

[5] IRC § 6323(b).

[6] Id.

[7] IRC § 6323(c).

[8] IRC § 6323(g).

[9] IRC § 6324(a)(1).

[10] Id.

[11] IRC § 6324(a)(2).

[12] IRC § 6324(a)(3).

[13] IRC § 6324(b).

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