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Bob Bethea and Jim Coates
Capital of Texas Enrolled Agents
Mortgage (Consensual)
Property Taxes
Mechanics Lien
Judgement
Federal Tax Lien
What is a lien?
Assessment
Failure or Refusal to pay [IRC 6323: 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.]
A Statutory, silent lien is created
What Creates a Federal Tax Lien?
Recorded Document
Form 668Y(c)
What is a Notice of Federal Tax Lien?
Can’t sell property without addressing the lien
10 Exceptions outlined in IRC 6323 – example: Motor Vehicles (without knowledge), retail sales, casual sales
Can’t borrow on property without subordination
Establishes rights to the equity in property
Adversely affects credit rating
May affect employment
What affect does a NFTL have?
Release
Withdrawal
Discharge
Subordination
Non-attachment
Subrogation
What can be done?
When Paid or statute expires
When Abated
Release
Liens are automatically released if not refiled within the refile period
Automatic Release
Abbreviated reasons: the filing of the notice was premature or otherwise not
in accordance with the Service's administrative procedures
the taxpayer entered into an agreement under IRC §6159
withdrawal of such notice will facilitate the collection of the tax liability
with the consent of the taxpayer or the National Taxpayer Advocate, the withdrawal of such notice would be in the best interest of the taxpayer
Withdrawal
Application is Form 12277, Application for Withdrawal of Filed Notice of Federal Tax Lien
Withdrawal - continued
Discharge
Most common: IRC 6325(b)(2)(A)An amount not less than the value of the government’s interest in the property is paid in partial satisfaction of the liability. To qualify the taxpayer must be divested of all interest in the property after the transaction. IRS Form 669-B
Somewhat common: 6325(b)(2)(B)It is determined that the interest of the United States in the property to be discharged from the lien has no value. To qualify the taxpayer must be divested of all interest in the property after the transaction. IRS Form 669-C
The lien can be discharged from a specific property under one of five IRC Sections--
Discharge - continuedLess common: IRC 6325(b)(1)The remaining property of the taxpayer has a fair market value that is double the sum of the amount of the federal tax lien plus other encumbrances that have priority over the federal tax lien. IRS Form 669-A
Somewhat rare: IRC 6325(b)(3)The proceeds of the sale are held as a fund subject to the liens and claims of the government in the same manner and priority as was the property that was discharged. To qualify the taxpayer must be divested of all interest in the property after the transaction. IRS Form 669-H
Rare: IRC 6325(b)(4)The third-party owner, not the taxpayer, deposits the value of the government’s interest in the property in cash or provides an acceptable bond. Form 669-G
Fair market value must be determined. An appraisal by a qualified disinterested third party along with one other less formal appraisal must be included
Expenses of sale must be reasonable and be paid from the proceeds
HUD-1 and preliminary title report should be included
Relocation expenses can be allowed if hardship. Expenses must be reasonable and subject to limitations. Use IRS Form 12451
Discharge requirements
IRS Publication 783 and Form 14135 (3 pages+)
Discharge Application
Subordination is the process of allowing a junior creditor a position ahead of the federal tax lien with respect to any part of property subject to the federal tax lien. The subordination process is governed by IRC § 6325(d).
Subordination
Subordination - continuedIRC 6325(d)(1)There is paid over to the Service an amount, on a dollar for dollar basis, not less than the amount of the interest of the NFTL or interest to be subordinated. IRS Form 669-D
IRC 6325(d)(2)It is determined that the interest of the United States in any part of the property covered by the NFTL will ultimately be increased by the subordination and collection of the outstanding liability will thereby be facilitated. IRS Form 669-D
IRC 6325(d)(3)It is determined that the United States will be adequately secured after subordination of a lien imposed by IRC § 6324B (Estate). IRS Form 669-F
IRS Publication 785 and Form 14134 (3 pages+)
Subordination Application
IRC § 6325(e) provides for the issuance of a certificate of non-attachment when any person, because of similarity of names or otherwise, is or may be injured by the appearance that a federal tax lien attaches to their property.
Pub 1024 – There is no IRS Form
Non-Attachment
The doctrine of equitable subrogation is expressly recognized by IRC §6323(i)(2), to the extent it exists under state law. Although laws vary from state to state, the following statements can generally be made about subrogation.
It substitutes one person in place of another with respect to a lawful claim or right.
It arises when a junior creditor or lien holder pays off, on a dollar for dollar basis, an encumbrance senior to the NFTL in order to protect its interests. This may include refinanced mortgages by the same or different financial institutions.
There is no certificate that needs to be issued for the subrogation. It is by operation of law and is defined in each state’s law, where applicable. See Local Law Guides on the Chief Counsel web site.
Subordination of the tax lien is not necessary if a creditor meets the requirements of subrogation; however, financial institutions usually want a certificate of subordination in these situations so questions of lien priority are addressed in the public record.
Equitable Subrogation
Alter Ego Alter ego essentially means a "second self." It is a doctrine that allows the law to
disregard an entity’s separate legal identity in order to extend liability and prevent abuse.
Nominee 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.
Transferee Transferee refers specifically when a statutory lien attaches to property and the property has
been transferred by the taxpayer through a gift, bequest, devise, or inheritance before an NFTL could be filed.
Special Circumstances
Recommended