IRS Tax Lien Questions

What is a Lien?

• A lien is a charge or an encumbrance that a person has on the property of another as a security for a debt or other obligation
• A tax lien does not divest the taxpayer of his or her property or the rights to transfer property

What is a Levy?

• A levy divests a taxpayer of property…and transfers constructive ownership to the government

Types of Liens-

• Consensual- Home mortgage
• Common Law Lien- Inn Keeper’s lien on the belongings of a delinquent tenant
• Statutory Lien- Federal Tax Lien
• General Lien- All property of a debtor
• Specific Lien- most Consensual and Common Liens

Liens are governed by Code Sec. 6321- If any person is liable to pay any tax neglects or refuses to pay the same after demand, the amount…shall be a Lien in favor of the United States upon all property rights…

What makes a Lien Valid?

• There must be a valid assessment
• The IRS must make a demand for payment
• Taxpayer must have either neglected or refused to pay after demand

What Property does the General Tax Lien Attach?

• The federal tax lien attaches to all property belonging to the taxpayer on the date of the assessment
• The Lien also attaches to after- acquired property
• The Lien is an ongoing, virtually living thing
• It continues in existence until the liability is satisfied or becomes unenforceable

Does a Tax Lien make the government a secured creditor?

• Once a tax lien exists…
• The IRS must give the taxpayer a 30-day notice before levying upon and seizing the taxpayer’s assets
• Once the tax lien exists, the government becomes the taxpayer’s secured creditor
• The security is the tax lien
• The government is entitled to payment before general, unsecured creditors

Does the Tax Lien interfere with the transfer of property?

• A tax lien can severely hurt the taxpayer’s credit standing
• Another menace of the tax lien is that it interferes with the transfer of any property…to which a paper title is necessary
• This includes real estate and personal property subject to recorded security agreements or UCC filings
• The tax lien either prevents the property from being transferred or follows the transferred property…
• Whether that transfer is for consideration, gratuitous or even fraudulent
• A valid retroactive disclaimer under state law of the interest of the beneficiary under a will does not prevent the tax lien form attaching to the disclaimed property

What is the difference between a tax lien and the discharge of property subject to a lien?

• A release of a tax lien completely extinguishes the lien
• A discharge operates to discharge specific property to which the lien has attached.

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