New IRS Tax Lien Regulations Issued

Published Categorized as IRS Debts, IRS Liens & Levies, Tax Procedure
New Irs Tax Lien Regulations Issued, Houston Tax Attorney

When the IRS places a lien on someone’s property, it means that the taxpayer owes the IRS back taxes. The lien serves as a legal claim against the taxpayer’s property, and it can negatively impact their financial and professional life.

One of the most significant consequences of an IRS tax lien is the damage it can cause to the taxpayer’s credit score. The lien can remain on the taxpayer’s credit report for up to ten years, making it difficult for them to obtain loans, credit cards, or even rent an apartment. The lien can also affect the taxpayer’s ability to secure employment, as many employers run credit checks before hiring.

The IRS tax lien can also call into question the taxpayer’s occupational licenses. Some professions require certain licenses, and if a taxpayer’s license is tied to their creditworthiness, they may not be able to renew it if they have an outstanding tax lien.

Furthermore, once the IRS files a lien, the taxpayer can expect to receive a flood of mail and phone calls from tax resolution companies offering their services. These companies often make unrealistic promises of settling tax debts for pennies on the dollar, but they often charge exorbitant fees and do not deliver on their promises.

This is why it is helpful to have more guidance, as uncertainties only exacerbate these issues. That brings us to the topic of this post. The IRS recently released proposed regulations that address IRS liens.

About Liens and IRS Liens

A tax lien is a claim to property.  Think of it as a post-it note that says “you we me” that attaches to the taxpayer’s property.  

Creditors have to take certain steps under state law to obtain a lien.  This typically involves obtaining a judgment from the court.  But there are exceptions, such as mechanics liens that contractors can file for services they perform.  

The lien is one thing, the lien notice is quite another. Its the lien notice that matters the most.

A notice of lien is a legal document that notifies the public that a creditor has a claim against a debtor’s property. The notice of lien is filed with the appropriate government agency, and it creates a lien against the debtor’s property. The protection of certain interests refers to the fact that even though a notice of lien is filed, certain interests may still have priority over the lien. For example, an attorney who holds a lien upon, or a contract enforceable against, a judgment or other amount in settlement of a claim or of a cause of action may have priority over a federal tax lien. Similarly, a holder of a lien on tangible personal property which under local law secures the reasonable price of the repair or improvement of the property may have priority over a federal tax lien.

Federal law provides that a lien arises by operation of law once taxes are unpaid.  The IRS can then file a notice of the lien to help protect its rights to the taxpayer’s property.  The authority for this is found in Section 6323.

Section 6323 outlines the requirements for filing a notice of lien by the IRS, including the place of filing and the situs of the property subject to the lien. It also defines terms such as “commercial financing security” and “qualified property” and provides limitations on their application. The section also includes provisions for the withdrawal of a notice of lien and the treatment of obligatory disbursement agreements and surety agreements.

The New IRS Lien Regulations

The Treasury Department issued new proposed regulations for certificates of discharge of IRS tax liens today.  The regulations are required to comply with the IRS Restructuring and Reform Act of 1998.

Most significantly, these new proposed regulations add procedures for property owners who did not create the tax lien (i.e., persons who purchase property subject to IRS tax liens) to request that IRS tax liens be released. Essentially the regulations allow this non-tax debtor owner to make a tax deposit or post a bond and it allows the IRS and the federal district courts to determine what happens to the deposit or bond.

The regulations were updated even after this article was written. In 2011, the Treasury added § 301.6323(b)-1. Under this regulation, certain types of personal property may have priority over a federal tax lien, even if a notice of lien has been filed. These include:

  • Tangible personal property subject to possessory liens
  • Real property tax and special assessment liens
  • Residential property subject to a mechanic’s lien for certain repairs and improvements
  • Personal property purchased in casual sale
  • Certain insurance contracts

However, the specific conditions and limitations for each type of property are outlined in the regulation and may vary depending on the situation. The regulation also provides several helpful examples.

The Takeaway

The new regulation affects taxpayers who own or are considering purchasing property that is subject to an IRS tax lien. Given the complexity of tax laws and regulations, it is essential to seek the assistance of an experienced tax attorney. The attorney can provide legal guidance and help taxpayers navigate the regulatory process. An experienced attorney will be familiar with the new regulation and can advise taxpayers on how to comply with it. The attorney can help protect the taxpayer’s interests and ensure that they are making an informed decision.

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