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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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