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LiensIRS Notice of Tax Lien AbusesAfter a tax has been assessed by the IRS and a
demand for payment has been made upon the taxpayer, a lien arises in
favor of the United States upon all real and personal property of the
delinquent taxpayer[1] (the “statutory
lien”). The statutory lien includes not only property held by
the taxpayer at the time of assessment, but also all after-acquired
property[2]. The statutory lien
continues until the liability for the amount assessed is satisfied or
becomes unenforceable from the expiration of the statute of limitations.[3]
However, a statutory lien is not valid against any potential
mortgagee, pledgee, purchaser, or judgment creditor until a
notice of lien has been filed by the Secretary or his delegate in
the public records[4]
to perfect the surviving statutory lien. The IRS must elect to file a Notice of Lien.
The IRS has the discretionary authority to perfect the statutory
lien by filing the tax lien in the public records; it is not a mandatory
filing requirement. With that discretionary authority, Congress
has (in effect) instructed the IRS to weigh the advantages for the IRS
and the disadvantages to a taxpayer before filing a Notice of Lien in
the public records. A tax lien in the public records has very
serious and devastating consequences. After the Notice has been filed,
individual and business taxpayers will immediately be encumbered with
bad credit that is likely to be a stain on their credit report for
approximately ten years. After the credit agencies and lending
institutions note the Notice of Lien, individuals will have difficulty
getting a credit card, buying a home, renting an apartment, buying a
car, and other items to provide for their reasonable and necessary
living expenses. The few taxpayers able to get credit through
other resources will still have to pay higher credit rates than the
normal rates. In some industries, an IRS tax lien will cause the
loss of a job or a business relationship (e.g. those who work in the
defense industry, the banking industry, the securities industry and the
insurance industry which all require high qualification standards to
maintain employment status). The credit agencies normally sustain
data on the tax lien for ten years; a very long time to deny access to
credit when the taxpayer needs a home or a new car. Individuals may suffer a temporary job loss;
there may be an illness in the family; or some other emergencies that
prevent them from being current on their taxes. When the emergency
is over, taxpayers have the potential to regain their ability to pay
their tax debt in full. After the personal or business problems
are resolved, the Notice of Lien adds enormously to the inability of the
individual to pay their tax debt. Their credit score will
disqualify them from many job opportunities. In those situations,
the Notice is counter productive. For businesses, the credit stain is equally
devastating. Creditors will stop shipping inventory unless paid
for by cash and banks will withdraw lines of credit, results that will
cause most businesses to immediately fail. A sudden loss of a line
of credit is toxic to the ability of a business to survive in
circumstances where the business is dependant on that line of credit.
All businesses need credit to function efficiently and effectively.
This may be the reason for a very high percentage of business failures. For those businesses that would survive without
the Notice of Lien, the Lien is obviously counter productive. Most
businesses have similar temporary financial problems: there are
losses of key employees, hurricanes, the impact of 9/11, embezzlements,
loss of a key customer account, etc. The problems that businesses
have, temporarily leaving them tax-delinquent, are not insurmountable as
the businesses stabilize and grow. There is a substantial economic
loss to the Treasury when businesses do not survive to pay taxes,
provide employment income to others, and continue to grow their business
enterprise. It is agreed that the IRS Notice of Lien is
appropriate in many cases[5]. The
Notice gives the IRS the obvious advantage of getting priority in
bankruptcy and the filing cuts off the rights of non-perfected claims of
other creditors. But the IRS ignores the intent of Congress when it uses
the bankruptcy-priority argument in all cases. The IRS Revenue
Officers and Revenue Agents and their managers do not take into account
their obligation to weigh the equities and the risks in determining
whether they should file a Notice of Lien in most cases, and never in
mandatory lien situations (i.e. where the tax liability exceeds the IRS
threshold). The threshold for Filing a Notice of Lien in
most IRS offices is $5,000; anytime the threshold is exceeded, the IRS
Notice of Tax Lien is automatically filed. That automatic
filing means that the IRS has transmuted a discretionary
Congressional statute into a mandatory lien statute contrary to the
clear intent of the Congress. The mandatory lien filings are also
contrary to the IRS Manual.[6] All Installment Agreements give the IRS the authority to file a Notice of Lien as part of the terms of an Installment Agreement[7]. An Installment Agreement is a contract by a taxpayer to pay their tax debt in installments over a period of years. Installment Agreements are based upon the premise that the taxpayer can afford to make the payments. It is anomalous to file the Notice of Tax Lien when the taxpayer agrees to pay the tax debt. Further, the Installment Agreement is automatically cancelled by the IRS if the taxpayer misses a payment, a built-in trigger that protects the IRS; the IRS could always file a Notice of Lien if a taxpayer is in default of the agreement. There is a systemic problem in Notice of Lien case. Since 1998, a taxpayer has the “due process” right to appeal the Notice; however, the damage to credit is unforgiving and immediate. It takes two or three monthis to get the case to the IRS Office of Appeals. The ability to require the filing of a Notice of a Tax Lien as part of the terms of an Installment Agreement is contrary to the intent of the Congress because it punishes a taxpayer for agreeing to pay his tax debt. Congress has gone out of its way to encourage Installment Agreements as good tax policy.[8]. Further, Congress has expressly authorized the IRS to withdraw a Notice of Tax Lien when taxpayers enter into an Installment Agreement.[9] The basic tax policy of the Congress is to encourage Installment Agreements. The basic policy of the IRS is to discourage Installment Agreements because it (mostly[10]) requires a tax lien as a term and condition of the Installment Agreement. Congress wants both taxpayers and the IRS to
follow the tax law passed by the Congress. The failure of the IRS
to follow the law and its clear tax policy is unacceptable. From a database of unlimited duration based upon
actual case histories of IRS lien abuse case histories, the IRS Forum
will accomplish the following objectives •
The above analysis defines IRS abuse of the tax law dealing with tax
liens, and it identifies the failure of the IRS to follow the
Congressional tax policy to encourage Installment Agreements. •
The IRS Forum is the “repository” that will receive and document
case histories from taxpayers throughout the U.S. to support the
conclusion that the IRS has failed to follow the law on tax liens (e.g.,
mandatory tax liens). The same case histories will also document
the failure of the IRS to follow the tax policy articulated by the
Congress to encourage Installment Agreements. •
One taxpayer complaint to a Congressman or Senator gets little or no
attention because Congress cannot interfere with the administration of
the tax law by the IRS. However, when large scale abuses are
documented and collected within the IRS Forum database, this data will
be available to Congress to evaluate when considering any tax
legislation or other action to correct the documented lien abuse cases.
•
The IRS Forum empowers taxpayers, by uniting them as a group, thereby
enhancing their ability to effectively communicate their IRS abuse
issues with greater impact to the public and to the Congress. •
The IRS Forum is a vehicle to educate the Congress, the media, and the
public about documented IRS Notice of Lien abuse case histories (e.g.,
viable businesses that failed solely because of a capricious tax lien). •
The IRS Forum will create “talking points” for those individuals and
groups looking to facilitate IRS reform and/or basic tax reform with
documented cases of IRS lien abuse cases. •
Data will be available for targeted remediation. For example,
Congress may want to consider a “safe harbor” (i.e., no tax lien) in
specific situations. The Congress may want to draft threshold
procedures before the IRS can file a Notice of Lien that would otherwise
unnecessarily destroy the economic stability of a family or a business. •
It is important to document instances where the IRS does not follow the
tax policy mandated to them by the Congress. Treasury has the
authority to establish tax policy where none is stated but not in the
present situation, where the Congressional tax policy is clear.
The IRS is required to follow the clearly expressed intent of the
Congress to encourage Installment Agreements, not penalize taxpayers for
entering into Installment Agreements with a devastating and automatic
Notice of Lien. •
The data solicited from the victims of IRS lien abuse cases will provide
evidence to the members of the Congress, the Treasury, and the Federal
Reserve Board proving that the capricious failure of the IRS to follow
the intent of Congress is counter productive to the economy.
Credit is stimulative to the economy, businesses, to the labor market,
and the general welfare of the American public. The premise for
this statement is that most Notices of Liens (most noticeably in
mandatory lien cases, including Installment Agreements) are avoidable
and not necessary to enforce the IRS collection efforts in many cases. “IRS Notice of Tax Lien Abuses” was drafted
by irstaxattorney[11] and is intended as a
public educational service. For any questions, contact irstaxattorney@irsforum.org. [1]
Section 6321 of the Internal Revenue Code provides that:
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. [2]
United States v. McDermott, 507
U.S. 447, 455 (1993). [3]
Section 6322 of the Code. [4] Section 6323(a) of the Code. Section 6323(f) of the Code identifies the place that the IRS need to go to perfect its lien. In the case of real estate, the IRS statutory lien can be cut off unless the IRS files is lien in the office within the State (or the county, or other government subdivision), as designated by the laws of the State in which the property subject to the lien is stated. [5]
Internal Revenue Manual 5.12.1.1(05-20-2005) states its purpose of
filing a Notice of Federal Tax Lien (NFTL): The purpose of filing
the NFTL is to protect the Government’s right of priority against
certain third parties, typically a purchaser, holder of a security
interest, mechanic’s lien or, or judgment lien creditor. [6]
IRM 5.12.2.4.2 (06-09-2005) [7]
See the bottom of IRS Form 433-D [8]
Title X-B.27 of the Conference Report to the American Jobs Creation
Act of 2004 provides new authority to the IRS to accept part pay
Installment Agreements even if the Installment Agreement does not
full-pay the tax debt within the 10 year statute of limitations for
collection by the IRS. This provision reflects the very strong
intent of the Congress to encourage Installment Agreements.
[9]
Section 6323(j)(1)(B) and (C) of the Internal Revenue Code. [10]
We know of no cases where the Notice of Lien was not required as an
essential term and condition for an Installment Agreement. [11]
IRStaxattorney is a tax attorney who specialized in IRS
controversies, issues and problems. We see IRS abuses of power
on a daily basis. It is hoped that others who practice before
the IRS will also have their abuse cases posted to the IRS Forum.
The IRS Forum does not accept advertising, and there are no
membership fees. The IRS Forum will depend on voluntary
donations, tax deductible under section 501(c)(3), for its support
for editors and other basic staffing to serve it mandate to provide
educational and non-political objectives. |
