Lien Filing Requirements

Home Services FAQ Site Map Contact Us

Articles by Alvin Brown
Tax Preparation
Offer In Compromise
State Offers in Compromise
Levy
IRS Tax Liens
IRS Tax Liens - continued
IRS Tax Liens - continued 2
Levy - continued
Audit Techniques Guide
Congressional Contacts
Criminal Investigation
D.O.J Criminal Tax Manual
Tax Litigation
Penalty
Installment Agreements
Statute of Limitations
Frivolous Tax Argument
Interest Abatement
IRS Misconduct
IRS Abuses
Tax Fraud
Fraud Statutes
Bankruptcy
Tax Reform Legislation
Tax Shelters
Tax Court
Trust Fund Penalty
Legislation
Innocent Spouse Relief
Important Links

Tax Lien - IRS Lien - Lien Discharge
Lien Appeals
Lien Filing Requirements
Lien Filing Requirements cont.
Certificates - Claim for Damages
Claim for Damages cont.
Judicial/Nonjudicial Foreclosures
Redemptions
Lien Processing
Internal Revenue Code 6321
State Law 6321
Internal Revenue Code 6322
Internal Revenue Code 6323
Internal Revenue Code 6324
Internal Revenue Code 6325
Internal Revenue Code 6326
Internal Revenue Code 6320
Internal Revenue Code 6327
Internal Revenue Code 6330
Certificate of Discharge from Tax Lien
Certificate of Subordination of Tax Lien
Lien Notice Requirements and Appeals
Tax Lien Certificate
6325 Regulations
Action to quiet title
Burden of Proof
Collateral Estoppel
Discharge of Bankruptcy
Effect of Partial Abatement
Certificate of release of tax lien
Certificate of Discharge
Claim for Damages
Choate Requirement - State Law
Suit to Cancel Lien
Certificate of Subordination
Discharge
Effect of Discharge
7425 Statute
7425 Regulations
Judicial Sales
Non-judicial Sales
Notice of Sale
Notice Requirement
Period of Redemption p1
Period of Redemption p2
Redemption Payment
Release of Right of Redemption
Scope of Redemption
After Foreclosure Result
Foreclosure Sales
6320-Applicability of Statute
6321 - After Aquired Property p1
6321 - After Aquired Property p2
6321 - After Aquired Property p3
6321 - After Aquired Property p4
6321 - Applicability of Statute
6321 - Collection Due Process Hearings
6321 - Annuities
6321 - Bank Deposits p1
6321 - Bank Deposits p2
6321 - Bankruptcy p1
6321 - Bankruptcy p2
6321 - Bankruptcy p3
6321 - Bankruptcy p4
6321 - Bankruptcy p5
6321 - Bankruptcy p6
6321 - Conveyances to Related Parties p1
6321 - Conveyances to Related Parties p2
6321 - Conveyances to Related Parties p3
6321 - Conveyances to 3rd Parties p1
6321 - Conveyances to 3rd Parties p2
6321 - Conveyances to 3rd Parties p3
6321 - Conveyances to 3rd Parties p4
6321 - Community Property p1
6321 - Community Property p2
6321 - Community Property p3
6321 - Employee Pension Plans
6321 - Creation of Lien p1
6321 - Creation of Lien p2
6321 - Creation of Lien p3
6321 - Creation of Lien p4
6321 - Creation of Lien p5
6321 - Debts Owed to the Taxpayer p1
6321 - Debts Owed to the Taxpayer p2
6321 - Debts Owed to the Taxpayer p3
6321 - Debts Owed to the Taxpayer p4
6321 - Debts Owed to the Taxpayer p5
6321 - Debts Owed to the Taxpayer p6
6321 - Escrow Accounts
6321 - Foreign Property
6321 - Forfeited Property
6321 - Fraudulent Conveyances Part1 p1
6321 - Fraudulent Conveyances Part1 p2
6321 - Fraudulent Conveyances Part1 p3
6321 - Fraudulent Conveyances Part1 p4
6321 - Fraudulent Conveyances Part1 p5
6321 - Fraudulent Conveyances Part1 p6
6321 - Fraudulent Conveyances Part1 p7
6321 - Fraudulent Conveyances Part1 p8
6321 - Fraudulent Conveyances Part1 p9
6321 - Fraudulent Conveyances Part1 p10
6321 - Fraudulent Conveyances Part1 p11
6321 - Fraudulent Conveyances Part1 p12
6321 - Fraudulent Conveyances Part2 p1
6321 - Fraudulent Conveyances Part2 p2
6321 - Fraudulent Conveyances Part2 p3
6321 - Fraudulent Conveyances Part2 p4
6321 - Fraudulent Conveyances Part2 p5
6321 - Fraudulent Conveyances Part2 p6
6321 - Fraudulent Conveyances Part3 p1
6321 - Fraudulent Conveyances Part3 p2
6321 - Fraudulent Conveyances Part3 p3
6321 - Fraudulent Conveyances Part3 p4
6321 - Fraudulent Conveyances Part3 p5
6321 - Fraudulent Conveyances Part3 p6
6321 - Funds on Deposit p1
6321 - Funds on Deposit p2
6321 - Funds on Deposit p1
6321 - Homesteaded Property p1
6321 - Homesteaded Property p2
6321 - Homesteaded Property p3
6321 - Insurance p1
6321 - Insurance p2
6321 - Insurance p3
6321 - Insurance p4
6321 - Licenses 2 - p1
6321 - Licenses 2 - p2
6321 - Licenses 2 - p3
6321 - Legal Obligations
6321 - Partnerships p1
6321 - Partnerships p2
6321 - Partnership Property
6321 - Other State Created Exemptions
6321 - Property Rights of 3rd Parties p1
6321 - Property Rights of 3rd Parties p2
6321 - Property Rights of 3rd Parties p3
6321 - Prior Law p1
6321 - Prior Law p2
6321 - Property rights of a nondeclared spouse p1
6321 - Property rights of a nondeclared spouse p2
6321 - Property rights of a nondeclared spouse p3
6321 - Property rights of a nondeclared spouse p4
6321 - Property Seized During Arrest
6321 - Stolen Property
6321 - Rent
6321 - Stock Certificates
6321-Unperfected interests p1
6321-Unperfected interests p2
6321-Unperfected interests p3
6321-Unperfected interests p4
6321-Unperfected interests p5
6321-Tangible property in the taxpayer's possession
6321-Trusts for third parties p1
6321-Trusts for third parties p2
6321-Trusts p1
6321-Trusts p2
6321-Trusts p3
6321-Trusts p4
6321-Trusts p5
6321-Trusts p6
6321-Trusts p7
6321-Property transferred during divorce (2) p1
6321-Property transferred during divorce (2) p2
6321-Real property p1
6321-Real property p2
6321-Real property p3
6321-Real property p4
6321-Real property p5
6321-Real property p6
6321-Real property p7
6321-Real property p8
6321-Relinquishments and disclaimers
6332 - Annotations- Exclusiveness of Remedy
6332 - Annotations- Evidence of Debts
6332 - Annotations- Garnishment
6332 - Annotations- Levy and Demand
6332 - Annotations- Insurance Policy 1 p1
6332 - Annotations- Insurance Policy 1 p2
6332 - Annotations- Insurance Policy 1 p3
6332 - Annotations- Insurance Policy 2
6332 - Annotations- Interest and Penalties
6332 - Annotations- Leasehold Interest
Taxpayer's Property in Possession of Thrid Party p1
Taxpayer's Property in Possession of Thrid Party p2
Taxpayer's Property in Possession of Thrid Party p3
6322-Constitutionality
6322-Limitations p1
6322-Limitations p2
6322-Prior law
6322-Relation-back doctrine
6322-Release of liens
6322-State law
6322-Waiver
6322 - Nevada

 

Lien Filing Requirements

Back Next

5.12.2  Lien Filing Requirements

5.12.2.1  (03-01-2004)
Creation and Duration

  1. A Federal Tax Lien (FTL) is created by statute and attaches to a taxpayer's property and rights to property for the amount of the liability. This is the "statutory" or "silent" FTL. Requirements for creating a FTL are contained in IRC 6321. The following must happen:
    1. An assessment must have been made.
    2. A demand for payment must have been made.
    3. The taxpayer must have neglected or refused to pay within 10 days of notification.

     

  2. The FTL will continue until the liability is satisfied or becomes unenforceable by lapse of time or a bond is accepted in the amount of the liability.

5.12.2.2  (03-01-2004)
Estate and Gift Tax

  1. Estate and Gift Tax Liens are discussed in IRM 5.5, Insolvency/Decedent Estate, Estate Taxes Collecting Handbook.
  2. To file a notice of the estate tax lien, Form 668(J) or Form 668(H) must be manually prepared.
  3. Manually post estate tax lien recording fees if applicable. These fees may be different than those fees used for recording Form 668(Y)(c).

5.12.2.3  (03-01-2004)
Lien Priorities

  1. The Federal Tax Lien (FTL) is not valid against purchasers, holders of security interests, mechanics lienors, and judgment lien creditors until a Notice of Federal Tax Lien (NFTL) has been filed. The filing of the NFTL notifies creditors that the FTL exists. The FTL becomes valid against those creditors discussed above at the time the NFTL is filed. Refer to IRC 6321. Exceptions exist for ten "superpriorities."
    1. Securities
    2. Motor Vehicles
    3. Retail purchases
    4. Casual sales
    5. Possessory liens
    6. Real property tax and special assessment liens
    7. Small repairs and improvements of residential real property.
    8. Attorney liens
    9. Certain insurance contracts
    10. Deposit secured loans

     

  2. These priorities are fully defined in the IRM, 5.17, Legal Reference Guide (LRG) for Revenue Officers.
  3. Purchase money security interests and purchase money mortgages have priority over a previously filed NFTL, if protected under local law. (Refer to Rev. Rul. 68-57).

5.12.2.4  (03-01-2004)
Priority of Certain Other Interests

  1. Advances made after or property coming into existence after the NFTL is filed have priority if granted by local law. Protection under local law must be the same that is provided against a judgment lien creditor at the time the NFTL is filed.
  2. The priority position of unrecorded instruments, particularly mortgages, should be governed by local law. See IRM 5.17.2.5
  3. Home Equity Line of Credit - it is advisable to investigate the facts of the case to determine how the funds were used in order to determine the priority of the FTL. If the funds are drawn after the NFTL is filed, determine if the mortgage/lender has a security interest in the real property. Verify the amount of money or money's worth that changed hands. Determine if:
    1. The entire amount was turned over to the taxpayer;
    2. The taxpayer is allowed to draw against the funds as he wants;
    3. A specific amount was approved;
    4. The taxpayer paid down the amount owed.

     

5.12.2.4.1  (03-01-2004)
45-Day Disbursement Period

  1. The law provides priority generally with respect to security interests in property held before the notice of lien filing which arose as a result of disbursements made prior to the 46th day after the filing of a tax lien, unless actual notice or knowledge of the filing is obtained sooner. However, for the priority to exist in such cases, certain conditions must be met. See IRM 5.17.2.5.3.4.

5.12.2.4.2  (03-01-2004)
Priority of Interest and Expenses

  1. Interest and certain expenses have the same priority as the related lien or security interest. See IRC 6323(e) and IRM 5.17.2.5.4

5.12.2.5  (03-01-2004)
Considerations Before Filing

  1. The government's interest must be protected.
  2. Consider all aspects of the taxpayer's circumstances before deciding to file a NFTL.
  3. Exercise judgment in deciding whether a NFTL should be filed.

5.12.2.6  (03-01-2004)
Filing Outside the U.S.

  1. No collection activity can be taken against property located outside the U.S., its territories or possessions, without an agreement or treaty with the situs country.

5.12.2.7  (03-01-2004)
Taxpayer Contact

  1. Make reasonable efforts, before filing the NFTL to contact the taxpayer to advise that a NFTL may be filed if payment is not made.
  2. Contact may be made by:
    1. telephone
    2. delivered in person
    3. mailing a notice or letter to the last known address.

     

  3. Give the taxpayer an opportunity to make payment or other security arrangements. Explain the effects of the NFTL filing on normal business operations or their credit rating.
  4. Certain restrictions have been placed on the Service regarding contact with taxpayers. See IRC 6304, Fair Tax Collection Practices.
  5. If the taxpayer disagrees with the proposed lien filing, advise the taxpayer of the right to appeal. Discuss both the Collection Appeals Program (CAP) and the Collection Due Process (CDP) under IRC 6320. See IRM 5.12.1

5.12.2.8  (03-01-2004)
Notice of Federal Tax Lien Determination

  1. The employee assigned the balance due case is responsible for safeguarding the government's interest. There are no rules to meet all Notice of Federal Tax Lien (NFTL) filing situations.
  2. Persons assigned balance due cases must exercise judgment in deciding whether or not a NFTL should be filed.

5.12.2.8.1  (03-01-2004)
Criteria for Filing a NFTL

  1. A NFTL filing determination must be made on all assigned cases including reactivated balance due cases within established time frames. The request for lien filing or the appropriate non-filing documentation must be prepared within 10 calendar days of personal contact.
  2. If contact cannot be made within the established time frame, a filing determination must be made within 10 calendar days after that time frame. See IRM 5.1, General Handbook, for established time frames. When possible, employees should verbally advise the taxpayer of the NFTL filing.
  3. When extending the lien filing determination time frame, thoroughly document the reason and establish a follow-up date.
  4. In general, a NFTL should be filed in the following situations:
    If Then
    the aggregate unpaid balance of assessment (UBA) is $5,000 or more file a NFTL.

    Note:

    Determine the need to file a NFTL when there are additional assessments. Use the transaction code date as the date of assessment for the liability when filing the NFTL.

    an installment agreement does not meet streamlined, guaranteed, or in-business trust fund express criteria file a NFTL.
    there are additional assessments of $5,000 or more file a NFTL.
    an open account with an aggregate UBA of $5,000 or more is being reported as currently not collectible file a NFTL.

    Note:

    Due to Collection Due Process Appeal Rights hold case for 45 days before closing or archiving the case file.

    a case involving both assessed and unassessed periods will be reported currently not collectible the NFTL filing may be held up to include both period on the NFTL.
    the property is exempt by the Federal Bankruptcy Code or state insolvency proceeding file a NFTL to protect the government's interest.
    the taxpayer resides outside the U.S. and has known assets file a NFTL. Contact requirements are waived.
       

     

    Note:

    Even though there is no mandatory NFTL filing requirement prior to service of a Notice of Levy, before levying the Service should consider, for purposes of lien priority, filing a NFTL.

     

  5. With the group manager's approval, liens may be filed on low dollar accounts, i.e., those below $5000. Managers should document their approval in the case history.
  6. Accrued interest and penalties added to tax should be collected during the limitation period for collecting the tax. This limitation period does not apply to bad checks, fraud penalty or certain other penalties that carry a separate collection statute expiration date.

5.12.2.8.2  (03-01-2004)
Criteria for Not Filing the NFTL

  1. In general, if the taxpayer meets one of the criteria below, a NFTL should not be filed. However, a NFTL may be filed when, in the judgment of the revenue officer, it is in the best interest of the government to record the lien.
    1. The aggregate unpaid balance of assessment is less than $5000. Group manager approval is required if a lien is to be filed.
    2. A NFTL is already filed, but a subsequent assessment has been made for less than $5000. Group manager approval is required if a lien is to be filed.
    3. The taxpayer is a defunct corporation whose assets have been previously liquidated. The case history must be documented with this information.
    4. The taxpayer is deceased and there are no known assess in an estate. The case history must be documented with this information.
    5. The taxpayer resides abroad and has no known assets in the United States. The case history must be documented with this information.

     

  2. Liens should not be filed in the following circumstances. The case history must be documented that the taxpayer meets the following criteria.
    1. The taxpayer is a corporate entity that has gone through a liquidating bankruptcy or receivership regardless of dollar amount. Document the proceeding number in the case history.
    2. Against a non-paying officer when an adjustment to the Trust Fund Recovery Penalty is pending because the assessment has been paid by more than one officer.
    3. There is an indication that the liability has been satisfied or that credits are available to satisfy the liability.
    4. The taxpayer is a financial institution under control of the Resolution Trust Corporation (RTC). See the section on "Withdrawal of Filed Notice of Federal Tax Lien" if a NFTL has been filed.
    5. The taxpayer is in bankruptcy and the NFTL relates to liabilities incurred before the taxpayer filed for bankruptcy. Section 362(a) of the Bankruptcy Code imposes an automatic stay that prohibits all creditors from taking certain collection actions against debtors in bankruptcy. A NFTL may be filed once the stay is lifted. In some circumstances, a NFTL may be filed for liabilities incurred after the taxpayer filed for bankruptcy. Consult Counsel to determine if a NFTL may be filed.

     

  3. Because there is no rule to fit all situations, a decision may be made to delay filing or refrain from filing a NFTL when, in the revenue officer's judgment, filing will hamper collection, is not proper because there is genuine doubt as to the validity of the liability, or when information forthcoming could lead to a determination of either of the above. For example, a taxpayer may be able to secure short-term financing in order to pay the liability, but only if the lender can be assured priority over the Service. The NFTL may threaten sources of funding, lead to breached financing statements, prohibit a non-profit from accessing a grant, or reduce a non-profit's ability to get donations. Revenue officers should balance these concerns against the likelihood the tax can be collected in full without filing a NFTL.
  4. Taxpayers commonly request relief from filing the NFTL because they fear the lien may lower their credit rating. A lowered credit rating is a natural consequence of failure to pay financial obligations timely, and in and of itself is not sufficient reason to withhold filing the NFTL. The revenue officer must consider whether the resultant lowered credit rating would be likely to hamper the taxpayer's ability to pay the tax liability. For example, in some cases filing a NFTL may cause the taxpayer to default secured financing agreements with other creditors and result in the loss of revenue needed to pay the tax.
  5. A decision not to file a NFTL must be supported by a history entry that clearly states why filing a NFTL is not proper, except if the taxpayer meets one of the criteria set forth in paragraph (1)(a) and (1)(b). The history must also contain a follow-up date by which the revenue officer will receive information needed or by which a NFTL will be filed. A recommendation for non-filing should be re-evaluated upon receipt of another balance due return or additional assessment, or when a taxpayer fails to met a specified deadline.
  6. The revenue officer will withhold filing the NFTL if the taxpayer has entered into a collateral agreement with the Service as provided in IRM 5.6. Revenue officers should document their case files and consult with Technical Services to ensure legal sufficiency.
  7. A taxpayer may submit a faxed request for non-filing of the NFTL if the revenue officer has made contact with the taxpayer by phone or in person. The revenue officer should document the case history with the date of contact and note that the taxpayer wishes to send the request by fax.

5.12.2.9  (03-01-2004)
Preparing the NFTL

  1. The correct and timely preparation of the NFTL is the responsibility of the person assigned the balance due. All NFTLs must be filed through the Automated Lien System (ALS) unless there is an expedite situation.
  2. Multiple assessments against the same taxpayer may be included on one Form 668(Y)(c)
    If Then
    there are one or more balance dues with multiple assessments prepare a separate entry in each column for each balance due.
    there are multiple assessments on one balance due show the assessment dates of all unpaid assessments including those penalties which carry a separate collection statute.
    an unassessed accrued amount remains outstanding and the assessed amount is paid file a NFTL on the total accrued amount as of the date the NFTL is requested.
    the taxpayer's name on the balance due is incorrect the NFTL should state the taxpayer's name correctly. Take the actions necessary to correct masterfile.

    Note:

    There may be instances when the name on the NFTL does not agree with what is on the balance due, e.g., if the statute has been extended on one taxpayer on a joint assessment, only the name of the still liable taxpayer should appear on the NFTL.

    the balance due has the name of a third party, i.e., accountant, attorney, etc., and a NFTL is being filed ensure that the address on the NFTL is the taxpayer's. A NFTL should never show the name and/or address of a third party or the names of corporate officers. When dealing with "c/o" be sure that the name and address on the NFTL is that of the taxpayer.
  3. Where a partnership is the taxpayer and employment taxes are involved, the NFTL should be prepared showing the words "a partnership " after the partnership name and list the names of known general partners, e.g.,
    1. XYZ, a partnership
    2. A, a partner
    3. B, a partner
    4. C, a partner

     

    Note:

    When a general partner is listed on the NFTL, a copy of L3172 must be provided. See IRM 5.12.1.

     

  4. File a NFTL in the jurisdiction where each general partner resides as well as where the partnership is located. When the place of filing changes, file a separate NFTL, i.e., file two NFTLs if the partnership and one of the general partners lives in a different jurisdiction, etc. Provide multiple address information, if appropriate.
  5. The NFTL should be prepared showing the words "a corporation " after the corporate name, e.g., XYZ, Inc., a corporation.
  6. Revenue officers at the GS-9 level and above have the authority to sign Form 668(Y)(c). The employee's name and identification number should be typed in the lower portion of the space for his/her signature and the title inserted in the appropriate block. The signature may be performed manually or by facsimile method. In the latter case, the employee whose signature appears on the form is responsible for its execution.
  7. Use the period when beginning (07-01-92) rather than the ending date (06-30-93) when preparing a NFTL for a Form 2290, Heavy Vehicle Use Tax Return. This is very important when there is more than one period for a specific TIN. The period beginnings must be used to separate each assessment to ensure that we receive the module satisfaction indicator from the masterfile when each module is satisfied.

5.12.2.9.1  (03-01-2004)
Use of Trade Names

  1. The abbreviation 'd/b/a' for 'doing business as' should be used only when an individual is actually doing business as a sole proprietor under a trade name, i.e., Edwin E. Kelly d/b/a Kelly's Garage. The abbreviation should never be used in a partnership situation.
  2. The same degree of care should be exercised when using the abbreviation 't/a' for 'trading as'. This is used where a corporate or partnership entity operates under a trade name other than the corporate or partnership name, e.g., Werk Hard, Inc., t/a The Diggers.

5.12.2.9.2  (03-01-2004)
Name Changes

  1. Taxpayers may change names after the NFTL has been filed. To avoid disputes over lien priority in subsequently acquired assets, file another NFTL reflecting the name or alias.
    1. Place the new name on the first line.
    2. Place the previous name on the second name line, preceded by either 'aka' for 'formerly known as'.

     

  2. Add the following statement to reference the original NFTL: This Notice of Federal Tax Lien is filed to modify Notice of Federal Tax Lien number (serial number), recorded (date), in Book ___, Page ___,by reflecting a new or proper name.
  3. Use this procedure when the taxpayer's name has been misspelled. See IRM 5.17, Legal Reference Guide for Revenue Officers for guidelines on errors that make a NFTL defective.
  4. With the advent of the DIAL interface, amended or corrected NFTLs should be rare. Amended or corrected NFTLs could affect the priority of the original NFTL.

5.12.2.9.3  (03-01-2004)
Special NFTL Conditions

  1. Revenue Officers may encounter situations where the taxpayer has transferred property and circumstances indicate actual or constructive fraud. Property may have been acquired in the name of another person or entity and the taxpayer controls the property to such an extent that the title holder is possessed of 'color of title'. This may result in an administrative transferee assessment, suit to assert a transferee liability, or a suit to set aside a fraudulent conveyance.
  2. Persons determined to be nominees or alter-egos are not entitled to collection due process appeal rights. The taxpayer against whose liabilities the nominee liens were filed is entitled CDP rights. You must issue L3177 and related publications after a lien has been filed. See IRM 5.12.1 for more information.

5.12.2.9.4  (03-01-2004)
Nominee Liens

  1. A nominee is someone designated to act for another. As used in the federal tax lien context, a nominee is generally a third party individual who holds legal title to property of a taxpayer while the taxpayer enjoys full use and benefit of that property. The FTL extends to property actually owned by the taxpayer even though a third party holds legal title. The third party can either be an individual or a trust.
  2. A nominee situation normally involves a fraudulent conveyance or transfer of a taxpayer's property to avoid legal obligations. To establish a nominee lien situation, it must be shown that while a third party may have legal title to the property, it is the taxpayer that owns the property and who enjoys the full use and benefits.
  3. Request Area Counsel advice before filing a nominee lien. Consider the following circumstances when developing your case:
    1. the taxpayer is paying maintenance expenses,
    2. the taxpayer is using the property as collateral for loans,
    3. the taxpayer is paying state and local taxes on the property,
    4. other use or benefit from the property
    5. other relevant facts.

     

  4. You may not file a nominee lien without the written approval of Area Counsel.
    1. Cases should be developed to withstand court challenge (with minimal additional development).
    2. Focus should be for advice as to the need for a supplemental assessment, a new notice and demand and the language to be incorporated in the NFTL.
    3. Prepare a report containing all of the facts of the case to accompany the request.
    4. Request Area Counsel direction regarding enforcement of the lien.

     

  5. Subsequent enforcement action is at the Area Office's discretion once Area Counsel has approved application of the nominee theory.
  6. In determining what additional enforcement action should be taken, consideration must be given to the confusion in the chain of title and redemption rights of the taxpayer. These conditions may depress the sale of the property.
  7. A judicial lien foreclosure or seizure followed by suit to foreclose the NFTL will generally bring a greater sale price particularly for real property.
  8. The administrative seizure and sale process may be used if prompt action is needed to protect the government's interest. If there is any doubt, request an opinion from Area Counsel.
  9. See IRM 5.17.2 for additional information.

5.12.2.9.5  (03-01-2004)
Alter-Ego Liens

  1. The "'alter-ego'" (second self) doctrine has been summarized as follows: The obligation of a corporation will be recognized as those of another person, and vice versa, where it appears that the corporation is not only influenced and governed by that person, but there is such a unity of interest and ownership that the individuality or separateness, of the person and the corporation has ceased. Also the facts are such that an adherence to the fiction of the separate existence of the corporation would, under the particular circumstances, sanction a fraud or promote an injustice.

    Note:

    It is generally more difficult to establish alter-ego relationships than a nominee situation.

     

  2. There are two elements to the alter ego doctrine:
    1. Unity of ownership and interest,
    2. Fraud or inequity would result from the failure to disregard the corporate entity.

     

  3. There is no exact formula as to when the doctrine can be applied. Some factors pertinent to a determination to disregard the corporate entity are:
    1. commingling of funds and other assets,
    2. failure to segregate funds of the separate entities,
    3. an unauthorized diversion of corporate funds or assets to other than corporate uses,
    4. treatment by an individual of the assets of the corporation as his own,
    5. failure to obtain authority to issue stock or to subscribe to or issue the same,
    6. holding out by an individual that he or she is personally liable for the debts of the corporation,
    7. failure to maintain minutes or adequate corporate records, and the confusion of records of separate entities,
    8. the identical equitable ownership in two entities,
    9. the failure to adequately capitalize a corporation, the total absence of corporate assets, and under capitalization,

     

  4. Explore the possibility of using the administrative process of jeopardy transferee assessment, nominee lien, emergency lien foreclosure action or emergency transferee or fraudulent conveyance suit before filing a NFTL in the name of an alter-ego.
  5. Do not file a NFTL in the name of an alter-ego without legal review, advice, and written direction from Area Counsel as to:
    1. the need for a supplemental assessment,
    2. a new notice and demand, and
    3. the language to be incorporated in the NFTL.

     

  6. Refer to the Legal Reference Guide, 5.17.2.4, for additional information.

5.12.2.9.6  (03-01-2004)
Partnership

  1. Partners are individually liable for partnership debts, and separate assessments against them are not essential to sustain their individual liability. The separate liability of the partners is not an issue unless the partnership neglects or fails to pay the assessed liability. See IRC 6332 and 6303.
  2. Partnerships normally have one employer identification number (EIN).
    If Then
    a single partnership has multiple outlets or businesses one EIN should be assigned to that partnership.
    the same person established several partnerships each partnership should be assigned a different EIN.
    there is any doubt that a change in name will effect the entity request an advisory opinion from Area Counsel through appropriate channels. See IRM 5.1 (General), Request for Entity Change, for entity change procedures. BMF must reflect the name change.

    Note:

    Although a change in name due to a change in membership of a partnership resulting from death, withdrawal, substitution or additional of a partner does not, in itself, effect a termination of a partnership for FICA or FUTA purposes, it does have an effect on the composition of the entity at law insofar as the collection of debts from the separate partners is concerned.

    Area Counsel advises that a new form should be submitted prepare either a Form SS-4, Application for Employer Identification Number or Form 2363, Master File Entity Change.
    adding to or changing a partnership entity list all partners adding "PTR" following the name of the last partner.

     

  3. A supplemental assessment will not be required when adding an individual partner's name to the partnership assessment. The Service will rely on the proposition that the assessment against the partnership creates a FTL against each individual partner.

5.12.2.9.7  (03-01-2004)
Transferee Liens

  1. There are two methods the government can use to collect an unpaid tax liability where a taxpayer (the transferrer) has transferred property to a third party (the transferee) prior to or after the assessment of the tax. Collection of the tax is based on finding that the transfer was a fraudulent conveyance. However, liability may arise under contract, various federal liability statutes or state statutes governing bulk sales, corporate dissolutions, and corporate reorganizations.
    1. The first method, a suit to set aside a fraudulent conveyance, the government collects the transferrers tax from the transferred property. This is done by the U.S. asking a U.S. District Court to make certain findings in a civil law suit. See IRM 5.17.14.
    2. The second method is administratively imposing transferee liability, which results in the imposition of personal liability for a tax on a third party. The liability is then collected from the third party's property. To do this, the Commissioner mails a notice of transferee liability to the transferee, then, if a tax court petition is not filed or the liability is sustained by the Tax Court, assesses the tax against the transferee under the authority of IRC 6901.
    3. Once the assessment is made, a notice of demand and payment is issued, and if the transferee does not pay, a NFTL may be issued.

     

  2. You will find many of the same issues in transferee situations that are found in nominee and alter-ego situations. Refer to IRM 5.17.14 for additional information on fraudulent conveyances and transferee liability.
  3. Contact local Counsel for written authorization before issuing a transferee lien.

5.12.2.9.8  (03-01-2004)
Limited Liability Company (LLC)

  1. When filing an NFTL on a single member owner disregarded LLC entity, only the name of the single member owner should appear on the lien document. Do not include the name of the disregarded LLC. Such action would indicate to a potential creditor that the government has perfected a lien interest in the assets of the LLC. Including the name of the LLC would create a situation parallel to a "doing business as" or "trading as" secondary name line.
  2. When a NFTL is filed in the name of the disregarded LLC, file a new NFTL in the name of the single member owner.
  3. Withdraw the previously filed NFTL where the name of the disregarded entity was used.
    1. Do not release a previously filed NFTL filed in the name of the disregarded entity. This action would extinguish the underlying statutory lien.
    2. Filing under the correct name will not preserve the priority of the NFTL filed under the name of the disregarded LLC.

     

  4. The EIN used in the assessment should be used for the lien, despite the resulting mismatch between the entity name and the EIN, to ensure systemic notifications for the lien release in the Automated Lien system.
  5. The entity type for the single member owner will dictate where the NFTL is filed with regard to the recording official specified in a state's version of the Uniform Federal Lien Registration Act.
    If the single member owner is then the NFTL filing location is the
    a corporation Secretary of State or equivalent official specified in state law.
    a partnership location provided for partnership filing in state law.
    an individual residence of the individual (for personal property).

    Note:

    To perfect the lien against real property, owned by the single member owner, state law generally requires filing with the jurisdiction where the property is physically located.

    another LLC location specified for the tax status elected by LLC or owner status if owner LLC is also disregarded.

     

5.12.2.9.9  (03-01-2004)
Correcting Lien Notices

  1. Some errors, such as an incorrect name, will make the NFTL invalid while other errors such as TIN, MFT and period will prevent the module satisfaction notification from posting.
  2. Incorrect NFTLs must be linked to corrected NFTLs and/or corrected information.
  3. Module satisfaction notification must be associated with correct TIN/name control and MFT/period and tied back to the incorrect NFTL so that the Certificate of Release can be generated for BOTH the correct and incorrect notice upon satisfaction or expiration. A "dummy" lien is prepared by the ALS Unit to do this.
  4. Guidance is provided in IRM 5.17, Legal Reference Guide, regarding errors in the taxpayer's name as it appears on the notice.
    If Then
    it is determined that the NFTL should be corrected file a new NFTL.
    the error on the original NFTL was made to the name control portion of the name line only and a new NFTL is not filed change the name control on the original NFTL record.

     

5.12.2.9.10  (03-01-2004)
Other Types of Errors

  1. Listed below is a chart that explains how to correct other types of errors.
    ERROR TYPE EXPLANATION
    Taxpayer Identification Number (TIN) This error type does not require a corrected NFTL document. Prepare a "dummy NFTL" in the database.
    MFT This type of error does not require a corrected NFTL document. Prepare a "dummy lien" in the database.
    Tax Period Based on provisions of IRC 6320, taxpayers are entitled to collection due process appeal rights for each tax period with a liability for which a NFTL has been filed. File a new NFTL when the tax period is incorrect.
    Assessment Date A corrected NFTL document is required. The life of the NFTL is directly related to this date. The last day for refining is computed within ALS based on the assessment date. If the assessment date is incorrect, the last day for refiling will be computed incorrectly. Do not file a dummy lien.
    Dollar Amount Amend the NFTL when there is a substantial increase or decrease to the dollar amount as the result of an audit or employee keystroke (input) error.
    Address No action is required to correct the original NFTL. If the city, state and/or zip code are incorrect, a new NFTL may have to be filed in the correct recording office.

     

    Note:

    Add this statement to an amended NFTL.THIS NOTICE OF FEDERAL TAX LIEN IS FILED TO CORRECT(insert what is being corrected, i.e., tax period, assessment date, MFT, minor misspelling) ON THE ORIGINAL LIEN RECORDED (insert date of filing) AS RECORDING NUMBER (insert recorder's number). ALL OTHER INFORMATION ON THE ORIGINAL NOTICE FILED IS CORRECT AND THAT INSTRUMENT REMAINS IN FULL FORCE AND EFFECT.

     

  2. Type AMENDED LIEN at the top of your NFTL to draw attention to the purpose of the additional lien filing.

5.12.2.10  (03-01-2004)
Place for Filing of Notice of Federal Tax Lien

  1. A NFTL encumbers motor vehicles, airplanes and vessels in the same manner as other personal property when a NFTL is filed in the recording office designated by state law as the residence of the taxpayer.
  2. Do not file Form 668(Y)(c) with Departments of Vehicles, FAA, or the U.S. Coast Guard or similar agencies. (See IRC 6323(f)(5)).
  3. Under state laws:
    1. Real Property - file in one office within the state (or county, or other governmental subdivision), as designated by the laws of the state, where the property is located. See Section 1.15 and IRC 6323(f)(1)(A)(ii).
    2. Personal Property - whether tangible or intangible, file in one office designated by the laws of the state, where the property is located (located at the residence of the taxpayer at the time the NFTL is filed). See IRC 6323(f)(1)(A)(ii).

     

  4. With clerk of district court - File in the office of the clerk of the United States district court for the judicial district where the property subject to the FTL is located, whenever the State has not by law designated one office which meets the requirements of (1) above; or
  5. With the recorder of deeds of the District of Columbia - File in the office of the Recorder of Deeds of the District of Columbia, if the property subject to the lien is situated in the District of Columbia.

5.12.2.10.1  (03-01-2004)
Notice of Claim - Documented Vessels

  1. A documented vessel:
    1. at a minimum weighs over 5 tons
    2. is used for commercial purposes, and
    3. is owned by a United States citizen.

     

  2. These vessels are registered with the U. S. Coast Guard under the vessels name rather than the name of the owner.

5.12.2.10.2  (03-01-2004)
Documented Vessel Abstract

  1. An abstract obtained from the National Vessel Documentation Center (NVDC) will provide the:
    1. history of the vessel,
    2. bill of sale,
    3. Maritime liens,
    4. satisfaction of mortgage
    5. assignments and amendments on file.

     

  2. A payment of $25 (money order only) must accompany each request for an abstract that is obtained from the National Vessel Documentation Center (NVDC).
  3. Prepare a letter or fax to NVDC with the following information:
    1. official number of the vessel, if known,
    2. Service employee's name and telephone number,
    3. location where the abstract should be sent,
    4. owner's name, hull number and name of vessel.

     

  4. If requesting an abstract via fax or by telephone, contact the NVDC at (800) 799-8362 to obtain payment instructions.
  5. Written requests should be sent to National Vessel Documentation Center, 2039 Stonewall Jackson Drive, Falling Waters, West Virginia 25419-9502.

5.12.2.10.3  (03-01-2004)
Notice of Claim

  1. In order for a NFTL to be effective on taxpayers who own documented vessels, a Notice of Claim (Exhibit 5.12.1-1) must be filed with the U.S. Coast Guard with a copy of the Notice of Federal Tax Lien attached.
  2. Filing a Notice of Claim assures that the documented vessel can be tied to the owner and that the vessel cannot be transferred out from under the NFTL.

    Note:

    A Notice of Claim can be filed ONLY if a preferred mortgage exists on the vessel. The NFTL does not constitute a preferred mortgage. An example of a preferred mortgage is the financial institution holding title to the vessel.

     

  3. The Notice of Federal Tax Lien must be filed in accordance with IRC 6323(f) even though you are filing a Notice of Claim.
  4. Prepare the Satisfaction of Mortgage document (Exhibit 5.12.2-2) when the liability is satisfied.
  5. Forward the notarized document to the U.S. Coast Guard where the Notice of Claim was filed.

5.12.2.11  (03-01-2004)
Liens Filed in Other Areas

  1. A NFTL may be filed in any Internal Revenue area, regardless of where the assessment is outstanding. Form 2209, Courtesy Investigation, should be prepared to request an out-of-area NFTL filing and can be faxed. The receiving area will prepare and file form 668(Y) through ALS. A TC 582 will be automatically generated.
  2. Form 2209 will contain sufficient information to enable the receiving area to properly prepare the NFTL and determine the proper place of filing. The Form 2209 must also indicate whether the NFTL is to reach real or personal property or both. This is necessary as the recording official may be different in certain states.
  3. After recording, the receiving office should input the recording data onto their database and transmit Part 2 of the NFTL with the recording data to the originating office.
  4. The Form 2209 and Part 2 of the Form 668(Y) will be associated with the related balance due file.
  5. Use ALS to file these liens, whenever possible. The employee identification information of the requesting employee will be shown on the NFTL and the collection due process notice. The NFTL will be printed in the receiving area office while the collection due process notice will be printed in the originating area office.
  6. Once modules are satisfied, a module satisfied notice will be generated to each area that previously requested a TC 582. A systemic release will be generated automatically and forwarded to the proper recording office.

5.12.2.12  (03-01-2004)
Filing the NFTL by Mail

  1. Arrange with local officials for the acceptance (for filing) of NFTL by mail. If necessary, have a transmittal accompany Parts 1 and 2 of the NFTL, Form 3915, Processing Notices and Releases of Federal Tax Lien and Other Related Certificates. A self-addressed postage paid envelope, E-25C, will be enclosed for the return of Part 2.
  2. If arrangements cannot be made with local officials to accept NFTL filing by mail or circumstances dictate immediate action, the NFTL should be delivered personally to the proper recording official.
  3. Receipted copies will be returned to Case Processing.

5.12.2.13  (03-01-2004)
Distributing the NFTL

  1. The Form 668Y(c), Notice of Federal Tax Lien, is a multi-part form. Distribute the form in the following manner:
    1. Mail Parts 1 and 2 to the recording office. If manually prepared, retain a copy in the case file prior to mailing.
    2. Part 2 will be returned by the recording office with the appropriate recording information documented.
    3. Mail Part 3 to the taxpayer. (Effective 1/19/1999, taxpayer copies of the NFTL are sent certified mail with the collection due process notice.

     

5.12.2.14  (03-01-2004)
Mutual Collection Assistance Requests (MCAR)

  1. Certain tax treaties have clauses where our treaty partners can request assistance from the Service to collect taxes owed them by individuals residing in the United States. The mutual collection treaty partners are France, Sweden, Denmark, Canada and the Netherlands.
  2. All MCARs from the treaty partners are received and processed by the Director, Small Business/Self Employed, Area 15 (International) Territory.
  3. The Service can take distraint action against U.S. assets to collect these foreign taxes. To do this, it may be necessary to file a Notice of Federal Tax Lien.

5.12.2.14.1  (03-01-2004)
Preparation of MCARs on Form 668(Y)

  1. The area office will process all MCARs lien requests as follows:
    1. Use the format shown in Exhibit 5.12.1-3 as a guide to prepare Form 668(Y), Notice of Federal Tax Lien. The information needed to complete Form 668(Y) is provided with the MCAR investigation sent to the area office.
    2. Contact International to secure the serial number for the NFTL. Do not use any other number except the serial number provided by International.
    3. Use the Taxpayer Control Number (TCN) assigned to the MCAR assessment by International as the identifying number on Form 668(Y), if the taxpayer identification number (TIN) is not known.
    4. Use the Last Day for Refiling collection statute date provided by the treaty partner.

     

  2. The NFTL will be filed in the appropriate recording office. Return a copy of the NFTL to International.
  3. Do not request input of TC 582 or TC 360 for the NFTL filing fee. NFTL fees are not assessed against MCAR taxpayers.
 

Home ] Services ] FAQ ] Site Map ] Contact Us ]

Presented by Alvin Brown and Associates, tax attorney, formerly with the Office of the Chief Counsel of the IRS. 
Call us for all IRS tax issues, problems and emergencies
Protect yourself from IRS intimidation, errors, and penalties.
www.irstaxattorney.com - ab@irstaxattorney.com - (888) 712-7690 - (703) 425-1400