Federal Tax Lien

A federal tax lien is created by statute as soon as a tax is assessed, IRS demands payment and the taxpayer fails to pay. Internal Revenue Code (IRC) §6321 states, “If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount, (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.”

Generally, the federal tax lien created by the Internal Revenue Code has a ten (10) year life-span and runs parallel to the 10-year collection statute of limitations. However, the life of a federal tax lien and the statutory period for collecting a delinquent federal tax liability can be modified beyond their initial terms by a number of different “tolling events.”

Most common tolling events include the filing of a request for an IRS Collection Due Process Hearing, a bankruptcy filing, by seeking a Taxpayer Assistance Order, or entering into a voluntary waiver with the IRS.  In any event, the IRS right to assert a federal tax lien and to seek involuntary collection of a delinquent federal tax remains in effect until the delinquent tax is satisfied or the statute of limitations for the tax and/or lien has expired. Calculation of the statute of limitations periods for a delinquent tax and related federal tax lien are critical in order to properly represent a delinquent taxpayer in an IRS collection case.   Hire an experienced Attorney-CPA at Scharar Law Firm, PC to help you calculate your statute of limitation period and to consider collection  alternatives today.

Notice of Federal Tax Lien

A Notice of Federal Tax Lien (NFTL) is filed to make the public and other creditors aware of the existing tax lien and to establish the government’s priority against other creditors or potential purchasers of your property. As described above, a federal tax lien arises upon assessment, demand for payment and failure to pay the delinquent tax liability. Although immediately applicable against the taxpayer, a tax lien will not affect the rights of a subsequent judgment creditor, mortgage lender or secured lender or “bona fide” purchaser until a Notice of Federal Tax Lien (“NFTL”) is filed. By filing the NFTL, the IRS obtains priority against all subsequent claimants. In many cases, the filing of a NFTL will also have a significant, adverse effect on a taxpayer’s credit and credit score.

Requirements before Filing Federal Tax Lien

The IRS is required to make reasonable efforts to contact the taxpayer before issuing an NTFL. Reasonable efforts are considered to be the issuance of an assessment, demand for payment and mailing of the following notices during the collection process.

  • Pub 594, What You Should Know About The IRS Collection Process.
  • Letter 501 (balance due reminder).
  • Letter 504 (balance due urgent notice).
  • Letter 1058 (final notice intent to file NFTL right to appeal).
  • ACS Letters LT 39 Reminder Notice or LT11 Final notice.

IRS Revenue Officers are encouraged to file a NFTL whenever the officer believes it will promote collection of the tax debt. The circumstances in which the IRS will refrain from filing a NFTL are rare, but the Revenue Officer is authorized to delay or withhold filing the lien only if the NFTL will jeopardize collection of the tax.

By hiring an Attorney-CPA with Scharar Law Firm, PC, we can assist to confirm the validity of the lien, the procedures used by the IRS to file the NTFL, and the limitations period remaining for the lien. The impact of a federal tax lien is broad and the remedies complex. Many times, the NFTL is filed improperly or in the wrong place. On other occasions, the IRS will inadvertently fail to release a lien after the statute of limitations has expired.

The attorneys at Scharar Law Firm, PC can often help obtain IRS subordination of the lien or discharge of the lien to refinance or sell a taxpayer’s property. If a lien has not yet been filed, we can propose less intrusive collection alternatives, appeal the lien decision to an IRS group manager, and/or assist in filing a Collection Due Process (CDP) Request.

When you or your business demands the dual need for an accountant and an attorney, you shouldn’t have to pay for two different, high-priced professionals.  The Attorney-CPA’s at Scharar Law Firm, PC  combine the knowledge and experience needed to address the critical issues you face from both legal and financial perspectives simultaneously.  Contact us today to experience the power of the dual view.


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