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Delinquent Taxes, Tax Liens and Assignments

DELINQUENT TAXES, TAX LIENS AND ASSIGNMENT INFORMATION

IMPORTANT INFORMATION : The following is a brief outline and timeline for Delinquent Taxes, Tax Liens, and the Assignment process for real property. Gallatin County does not offer legal help to taxpayers or advice to the purchasers of tax liens. 

Before investing in tax liens, please hire an attorney.  The information below should not be presumed as evidence, in whole or in part, of legal advice by the County Treasurer.

Please reference Montana Code Annotated for all laws associated with tax liens certificates, assignments, redemptions and tax deeds.  Do NOT contact our office for interpretation of those laws.

The Montana Code Annotated is published and distributed by the Montana Legislative Services Division, Capitol Bldg. Rm. 110, 1301 E 6th Avenue, P.O Box 201706, Helena, MT, 59620-1706, phone 406-444-3064; and located online at  https://leg.mt.gov/bills/mca/index.html . During the past few legislative sessions, the assignment process was changed and differs from previous laws on tax assignments taken after May 7, 2019.

Gallatin County has the authority to collect delinquent taxes in several ways, including through Writ of Execution, certain types of liens, and a public auction for personal property, including mobile homes, furniture, fixtures, equipment, and livestock. Delinquent real property taxes act as a lien held by the County on the real estate.  

Please note: The City of Bozeman forwards their delinquent special assessments to us for collection, and they become part of our tax records and are collectible using this same process. While you may have paid your County property taxes, you may have delinquent City of Bozeman special assessments for which a lien can be placed.

DELINQUENT TAXES : Taxes become delinquent on the day after the listed due date on your tax bill. All payments not received by the due date(s) listed on the on the front of the tax bill are considered delinquent, and a 2% penalty is charged immediately. Per Montana Code Annotated (MCA) Section 15-16-102 , interest is charged at the rate of 5/6 of 1% per month until paid (interest is calculated daily). We strongly encourage taxpayers to make every effort to pay their taxes to avoid paying penalties and interest or the potential loss of their property.

To help property owners avoid delinquent taxes on real property and mobile homes, Gallatin County may send a courtesy notice after the 1st half of property taxes become delinquent. After the second half of property taxes become delinquent, Gallatin County places an ad in the Bozeman Daily Chronicle advising delinquent taxpayers about the possibility that a lien could be placed against their property, per MCA 15-17-123 . Additionally, two weeks before the first working day in August, Gallatin County sends pending tax lien notices to the last known address of the property owner.  

PLEASE MAKE SURE THE MONTANA DEPARTMENT OF REVENUE HAS THE CORRECT MAILING ADDRESS FOR YOU . It is the property owner's responsibility to update their address with the Department of Revenue (DOR).    You can update your address by emailing: [email protected]  or by calling 406-582-3400. 

TAX LIENS : If real property becomes delinquent and remains so on the day before the first working day in August (August 1, 2022 for 2021 taxes), the County Treasurer must attach a tax lien on the property per MCA 15-17-125 , and file the lien with the Gallatin County Clerk and Recorder. A copy of the tax lien certificate is also sent to the recorded address for the property owner. A list of all parcels with liens is made available to the public and interested parties.  Property owners can still make payment on their delinquent taxes using [email protected] , which will release the lien, up until an assignment has been taken.  Once an assignment has been taken, the property owner will need to contact the Treasurer's Office for payment information and can do so by calling 406-582-3033.

ASSIGNMENTS : If the taxes on the property have not been received by August , another person (assignee), after following the steps outlined in Montana Code Annotated 15-17-323 , can take an "assignment" on the property by paying all taxes, penalty, interest, and costs, which transfers the lien from the County to the assignee.  

GALLATIN COUNTY ASSIGNMENT PRIORITY POLICY

TIMELINE FOR TAX YEAR TAX YEAR 2021 ASSIGNMENTS:    

JUNE 1 - July 31 :  If an assignment has been taken for any previous year's taxes, an assignee can pay the subsequent delinquent taxes on existing tax liens/assignments before a new tax lien is attached. If the property is under the Property Tax Assistance Program, payment of subsequent taxes will have to wait until June 21.  

AUGUST 1 :  All real properties with taxes that remain delinquent as of the first working day in August (August 1, 2022 for the 2021 tax year) will have a tax lien attached by the County. Those liens are then open to anyone to purchase as a separate assignment, following the steps outlined below a lien list of delinquent parcels is made available for potential assignees. If the taxpayer pays the delinquent taxes, a redemption certificate will be filed with the Clerk and Recorder, releasing the lien.  

AUGUST 15 : Before making a payment, a prospective assignee must send a Notice of Pending Assignment as required by MCA 15-17-125 and 15-17-323 , by certified mail, to the person to whom the property was assessed. The notice must have been mailed at least two weeks before the payment date but not earlier than August 15 and not more than 60 days before purchasing the assignment. The person making the payment shall provide proof of the mailing to the County Treasurer. A certified mailing receipt lacking either an address or a postmark is insufficient proof. 

AUGUST 30 : To be considered, prospective assignees must submit to the Gallatin County Treasurer, a list of all tax codes (parcel numbers), in the order of preference, for which the assignee wishes to purchase an assignment on, by noon on August 30, 2022. Lists can be mailed (must be received in our office by noon on August 30, 2022 so plan accordingly), emailed to [email protected] or dropped off at the County Treasurer's Office, located at 311 West Main, Room 103, Bozeman, MT 59715.  Timing of the receipt of documents does not affect the order in which the lottery will be conducted.

Appropriate proof or mail notices for each such parcel, as well as sufficient funds to purchase all assignments sought must accompany the list, and on the date and time listed in the paragraph above.  Payment includes all delinquent taxes, penalties, interest and a $60 fee per parcel.  Funds must be in verifiable form (i.e. a cashier’s check, a money order, or a personal check with a letter from the banking institution verifying that sufficient funds are in the account to cover the amount listed on the check). 

AUGUST 31 :  The first day that 2021 tax year tax liens can be purchased is August 31, 2022. If a third party purchases an assignment of a tax lien by paying all delinquent taxes, penalties and interest and a $60 fee. 

September 1:   This is the date that the lottery will be held and the majority of assignments will be issued. In most cases, receipts for the assignments are available within 5 days; however, certificates will be sent certified mail at a later date. If more than one person or entity is interested in the same parcel, the Gallatin County Treasurer will use a lottery system to award the assignments.  Please see the adopted priority policy link located on the upper left-hand corner of the main page.

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Everything That You Need to Know About Federal Tax Liens

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Jason B. Freeman

Managing member.

Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

When an IRS Tax Lien Arises

The Internal Revenue Code (IRC) governs when and how a federal tax lien arises.  The federal tax lien —sometimes referred to as a “statutory lien” or “silent lien”—is often confused with the notice of the lien’s existence, which is generally filed by the IRS at a later date (i.e. a Notice of Federal Tax Lien or NFTL ).

A Notice of Federal Tax Lien is a document that is publicly filed with state and local jurisdictions in order to put other creditors on notice of the IRS’s lien interest.  As a result, the NFTL itself does not actually create the lien—it merely informs others of a lien that already exists by statute.  However, the date of the NFTL filing is important for determining the IRS’s priority against other creditors.

Tax liens are one of the primary tools that the IRS uses to collect outstanding taxes.  The IRS also uses the levy process or seizures to collect taxes where available.  See our separate post on  IRS Seizures: The Good, the Bad, and The Ugly for more on topics related to levies and seizures.

What is a Tax Lien?

The law generally defines a lien as a charge or encumbrance on the property of another as security for a debt or obligation.  A lien does not change the ownership of the property; it merely identifies the property as having a claim against it.

Liens can be divided into three general categories : common-law liens, consensual liens, and statutory liens. The tax lien created under the Internal Revenue Code is a statutory lien.

The primary federal tax lien is the “general” tax lien, sometimes referred to as the “secret” or “silent” lien. The federal tax lien arises automatically—that is, by operation of law—when a taxpayer fails or refuses to pay tax after notice and demand.  I.R.C. § 6321.

The general tax lien under Section 6321 is broad; it generally encompasses all of the taxpayer’s property or rights to property to secure payment of tax liability.  Section 6321 provides that if any person liable to pay any tax neglects or refuses to pay the tax 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 belonging to such person.  However, the Government’s lien under §6321 cannot extend beyond the property interests held by the delinquent taxpayer.

Under I.R.C. section 6321, a federal tax lien attaches to all of a taxpayer’s property or rights to property. The Supreme Court has held that state law controls the determination of the existence of any legal interest that a taxpayer has in a property. Aquilino v. United States, 363 U.S. 509 (1960). However, whether the state-created interest constitutes property or rights to property to which the federal tax lien attaches is a matter of federal law. United States v. Bess, 357 U.S. 51 (1958).

In addition to the general federal tax lien, there are also special liens for estate and gift taxes that arise at the date of death or the date of the gift, respectively.  These liens are provided for by IRC § 6324. IRC § 6324A and IRC § 6324B also provides for special estate tax liens applicable to certain closely held business or farm or qualified family-owned business property.

How the Tax Lien Arises

A federal tax lien arises when any “person” liable for any federal tax fails to pay the tax after a demand by the Government for payment. IRC § 6321. For federal tax law purposes, a “person” includes individuals, trusts, estates, partnerships, associations, companies, and corporations. IRC § 7701(a)(1).

The lien is effective from the date that the Government assesses the tax. Thus, if the taxpayer neglects or refuses to pay the assessed tax, then the lien is deemed to “relate back” to the assessment date. IRC § 6322. The IRS is not required to file a Notice of Federal Tax Lien (“NFTL”) in order for the tax lien to attach. However, filing a NFTL may be necessary for the IRS to have priority over other creditors.

The Span of a Federal Tax Lien

The federal tax lien continues until the assessed tax liability is satisfied or becomes unenforceable by reason of lapse of time, i.e., passing of the collection statute expiration date (“CSED”). IRC § 6322. Generally, after assessment, the IRS has ten years to collect the tax liability. IRC § 6502. However, there are some circumstances that may extend or suspend the ten-year collection period.

IRC § 6502 provides for an extension of the collection period in two situations:

• The statute of limitations was extended at the same time an installment agreement was entered into. In this case, collection action may be taken until the 89th day after expiration of the installment agreement. IRC § 6502(a)(2)(A). [1]
• Release of a levy under IRC § 6343 is accompanied by an agreement to extend the statute of limitations to a specific date and that date has not yet passed. IRC § 6502(a)(2)(B); Treas. Reg. § 301.6343-1(b)(2)(ii)(D).

Moreover, IRC § 6503 provides for the suspension of the collection period in several situations. The most common situations are the following:

• Issuance of a statutory notice of deficiency, IRC § 6503(a).
• Assets of the taxpayer in control or custody of a court, IRC § 6503(b).
• Taxpayer is outside of the United States for a continuous period of at least 6 months, IRC § 6503(c).
• An extension exists for the payment of an estate tax, IRC § 6503(d).
• A wrongful seizure of property or a wrongful lien on property, IRC § 6503(f).
• A taxpayer bankruptcy filing triggering the automatic stay, IRC § 6503(h).

Taxpayers should note that there are other IRC sections whose provisions extend the Collection Statute Expiration Date (CSED), including, but not limited to, IRC §§ 6015(e)(2), 6330(e)(1), 6331(i)(5), 6331(k)(3)(B) and 6672(c)(4).

If the United States government files suit and reduces a tax claim to judgment, the collection period generally does not expire until the judgment has been satisfied or other law so provides.  United States v. Overman , 424 F.2d 1142 (9th Cir. 1970);  United States v. Hodes , 355 F.2d 746 (2nd Cir. 1966).

Taxpayers should be aware that state statutes of limitations do not affect the length or existence of the federal tax lien.  Overman , 424 F.2d at 1147.

The Transfer of Property Subject to Lien

After the federal tax lien attaches to property, it remains attached to that property until the lien expires, is released, or the property has been discharged from the lien. The transfer of property after attachment does not affect the lien.  United States v. Bess , 357 U.S. 51, 57 (1958). If property is sold by the taxpayer, the lien attaches to whatever is substituted for it, as it reaches all of the taxpayer’s property and rights to property.  Phelps v. United States , 421 U.S. 330, 334-35 (1975) (lien attached to the cash proceeds of a sale).  However, as a practical matter, it may be difficult for the IRS to enforce a tax lien against certain assets, such as cash sale proceeds.

The Notice of Federal Tax Lien (NFTL)

The federal tax lien arises by law when the IRS satisfies the prerequisites of IRC § 6321: (i) an assessment and (ii) a notice and demand for payment. However, for the federal tax lien to have priority against certain competing lien interests, the IRS must also file a NFTL pursuant to IRC § 6323.

Purpose and Effect of Filing Notice

The filing of a NFTL is not required in order to perfect the IRS’s lien against the taxpayer. Rather, filing a NFTL protects the government’s priority vis. a vis. third parties, such as a purchaser, security interest holder, mechanic’s lienor, or judgment lien creditor. IRC § 6323(a). Generally speaking, unless the IRS properly files a notice of its federal tax lien first, a purchaser will have priority over the federal tax lien. Similarly, unless the IRS files a NFTL first, the holder of a security interest, mechanic’s lienor, and judgment lien creditor will have priority over the federal tax lien.

IRC § 6323(f)(4) requires that in some states a NFTL filed with respect to real property must be indexed in order to be treated as filed. Indexing is required in a state where a deed must be indexed to be valid against a subsequent bona fide purchaser. See  Hanafy v. United States , 991 F. Supp. 794 (N.D. Tex. 1998).

Place of Filing

IRC § 6323(f) and state law ultimately determine the correct place to file a NFTL. If the Service files the NFTL in the wrong office, then the lien will not have priority over a later purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor.

Note that different filing rules apply for real property and personal property. IRC § 6323(f) provides that states may designate one office for filing the NFTL for real and personal property.

For real property, the NFTL is filed in the one office designated by the State where the property is physically located.  That office is generally the county recorder or clerk of the county in which the real property is located.

With respect to personal property, the “situs” of both tangible and intangible property is the residence of the taxpayer at the time the notice of lien is filed. Again, most states generally provide that the one office for filing the NFTL for an individual’s personal property is the county clerk’s office in the county in which the individual resides.

The residence of a corporation or partnership is deemed to be the place at which the principal executive office is located, which is the office at which the major executive decisions are made.  S. D’Antoni, Inc. v. Great Atlantic & Pacific Tea Co., Inc. , 496 F. 2d 1378 (5th Cir. 1974). For employment tax and certain excise tax purposes, a single-owner unincorporated business entity is classified as a corporation under Treas. Reg. § 301.7701-2(c)(2)(iv) and (v).

For purposes of filing a notice of federal tax lien, a taxpayer who resides abroad is deemed to reside in Washington, D.C. Thus, a notice of federal tax lien filed against personal property is to be filed with the Recorder of Deeds for the District of Columbia.

If a state fails to provide an office or designates more than one office for filing a NFTL, then IRC § 6323(f) provides that the NFTL is to be filed in the office of the clerk of the United States District Court for the judicial district in which the property subject to the lien is situated.

IRC § 6323(f)(5) provides that the filing of a NFTL is governed solely by the Internal Revenue Code and is not subject to any other Federal law establishing a place or places for the filing of liens or encumbrances under a national filing system. For purposes of determining whether a state has designated more than one office for filing a NFTL, state law that merely adopts or reenacts a Federal law establishing a national filing system is not counted. IRC § 6323(f)(1)(A)(ii). See also Treas. Reg. § 301.6323(f)-1(a)(2).

The Revised Uniform Federal Tax Lien Registration Act (1966), which has been adopted by many states, provides, among other things, a clear rule for the personal property of corporations and partnerships: NFTLs should be filed in the Office of the Secretary of State. This rule applies in states that have adopted the Act.

Refiling of Notice

All NFTLs must be refiled within the required refiling period to retain priority as of the initial filing date. If the period expires and the NFTL has not been refiled, most NFTLs will self release thirty days after the date that is ten years after the assessment, regardless of any extension or suspension of the collection statute of limitations.

The NFTL may be refiled during the one-year period ending 30 days after the expiration of ten years after the assessment date of the tax. IRC § 6323(g)(3)(A).

If the collection period continues to be suspended or extended after the initial refiling, the Service may have to refile again. This second refiling must be made in the one-year period ending with the expiration of 10 years after the close of the preceding required refiling period. IRC § 6323(g)(3)(B).

Often, the IRS files the NFTL in multiple offices. When the Service refiles, it must refile in each of the offices in which the prior NFTLs were filed. See IRC § 6323(g)(2)(A) and Treas. Reg. § 301.6323(g)-1(a)(1). If a taxpayer properly notifies the Service of a change of residence, the Service must not only refile in the original offices, but must also file a NFTL in the recording office covering the new residence.

If a self-releasing NFTL is filed in multiple offices with respect to a particular tax assessment, and the Service fails to timely refile in each of those offices, the assessment lien releases and the refiling of any other NFTL is rendered ineffective. Treas. Reg. § 301.6323(g)-1(a)(1). In other words, even if the NFTL is properly refiled in every office except for one, failure to refile in one office causes the underlying assessment lien to be extinguished and the refiled NFTLs to be ineffective.

However, neither the failure to refile before the expiration of the refiling period, nor the release of the lien, alters or impairs any right of the United States to property or its proceeds that is the subject of a levy or judicial proceeding commenced prior to the end of the refiling period or the release of the lien, except to the extent that a person acquires an interest in the property for adequate consideration after the commencement of the proceeding and does not have notice of, and is not bound by, the outcome of the proceeding. Treas. Reg. § 301.6323(g)-1(a)(3).

Contents of Notice of Federal Tax Lien

The Secretary of Treasury prescribes the form and content of the NFTL and the NFTL is valid notwithstanding any other provisions of law regarding the form or content. IRC § 6323(f)(3). State law may not require that the NFTL be in any particular form or contain any particular items to be recordable.  United States v. Union Central Life Ins. , 368 U.S. 291 (1961).

The NFTL can be either a paper form (the Service uses Form 668(Y)(c)), or a form transmitted electronically, including by fax or e-mail. Regardless of the method used to file the NFTL, it must identify the taxpayer, the tax liability giving rise to the lien, and the date the assessment arose. Treas. Reg. § 301.6323(f)-1(d)(2).

Effect of Errors in Notice of Federal Tax Lien

Errors appearing on the face of the Service’s filed NFTL often create problems not only in evaluating the validity of the NFTL, but also in determining relative priorities between the Service’s claim and other competing lien claimants.

A number of controversies concern errors in the name of the taxpayer as it appears on the NFTL. The general rule is that if the name on the notice is not identical to the correct name of the taxpayer, then the NFTL is still valid if the NFTL is sufficient to put a third party on notice of a lien outstanding against the taxpayer. This is known as the substantial compliance test .  United States v. Sirico , 247 F. Supp. 421 (S.D.N.Y. 1965).

In applying the substantial compliance test, some courts have upheld NFTLs even when there was an error in the taxpayer’s name.  SeeQuist v. Wiesener , 327 F.Supp.2d 890 (E.D. Tenn. 2004) (“Joint Effort” rather than “Joint Effort Productions, Inc.” );  Whiting-Turner v. P.D.H. Dev. Inc. , 184 F.Supp.2d 1368 (M.D.Ga. 2000) (“PDH Development, Inc.” rather than PD Hill Development, Inc.”);  Kivel v. United States , 878 F.2d 301 (9th Cir. 1989) (“Bobbie Morgan” rather than “Bobbie Morgan Lane” );  United States v. Polk , 822 F.2d 871 (9th Cir. 1987) (“Roy Bruce Polk” rather than “Bruce Polk” );  Tony Thornton Auction Service, Inc. v. United States , 791 F.2d 635 (8th Cir. 1986) (notice filed against “Davis’s Restaurant,” a partnership, and one partner, “Joe Davis,” was sufficient as notice against the other partner, “Mary Davis” );  Richter’s Loan Co. v. United States  , 235 F.2d 753 (5th Cir. 1956) (“Freidlander” rather than “Friedlander”);  Brightwell v. United States , 805 F. Supp. 1464 (S.D. Ind. 1992) (“William S. Van Horn” rather than “William B. Van Horn”); and  United States v. Sirico , 247 F. Supp. 421 (S.D.N.Y. 1965) (“Sirico, George” and “Sirico, A.” rather than “Assunta Sirico”).  ButseeFritschler, Pellino, Schrank & Rosen, S.C. v. United States , 716 F. Supp. 1157 (E.D.Wis. 1988) (“Alan G. Casey” rather than “Alan J. Casey”);  Haye v. United States , 461 F. Supp. 1168 (C.D.Cal. 1978) (“Castello” rather than “Castillo”);  United States v. Ruby Luggage Corp. , 142 F. Supp. 701 (S.D.N.Y. 1954) (“Ruby Luggage Corp.” rather than “S. Ruby Luggage Corp.”); and  Continental Invs. v. United States , 142 F. Supp. 542 (W.D. Tenn. 1953) (“W.B. Clark, Sr.” rather than “W.R. Clark, Sr.”).

In re Spearing Tool and Manufacturing Co., Inc. , 412 F.3d 653 (6th Cir. 2005),  cert. denied sub nom. Crestmark Bank v. United States , 549 U.S. 810 (2006), is the lead case for upholding a NFTL when lien filing records are electronically searched. In  Spearing Tool , the Sixth Circuit held that the Service’s identification of a taxpayer in a NFTL was sufficient where the name of the corporation appeared in an abbreviated form of the corporate name registered with the Michigan Secretary of State. A lien search by a secured creditor did not disclose the NFTLs that had been filed against “Spearing Tool & Mfg. Company, Inc.” The proper name under UCC filing rules was “Spearing Tool and Manufacturing Co.”

The 6th Circuit found that the secured creditor challenging the validity of the NFTL had failed to conduct a reasonable and diligent electronic search because its search did not take into consideration the following three factors:

• The use of the abbreviation “Mfg.” and the use of an ampersand are common.
• The secured creditor knew that Spearing Tool sometimes used these abbreviations.
• The Michigan Secretary of State’s office recommended to the secured creditor that it undertake a search using the abbreviations.

The 6th Circuit limited its holding to the facts and specifically expressed no opinion about whether creditors have a general obligation to search name variations.

In summary, when searching for a NFTL in public records, either in a book format or electronic format, the searcher must act reasonably and diligently. The NFTL identifies the taxpayer when it is sufficient to put a third party on notice of a lien outstanding against the taxpayer. Since this is essentially a factual question, however, it is especially important to pay attention to the “details.” Thus, for example, if the IRS suspects that a person uses any aliases or owns property held for him/her by a nominee, agent or trustee, it may prepare an individual NFTL for filing in all such names.

Collection Due Process

IRC § 6320 gives the taxpayer the right to challenge a NFTL filing, request a Collection Due Process (CDP) hearing with Appeals, and seek judicial review of Appeals’ determination with the Tax Court. The Service must generally notify the taxpayer within 5 business days after the date of filing the first NFTL for a tax period. The notice of lien must be given in person, left at the taxpayer’s home or place of business, or sent by certified or registered mail to the person’s last known address. The notice must also inform the taxpayer of the amount of the unpaid tax, the taxpayer’s right to request a hearing, the available administrative appeals procedures, and applicable procedures for releasing the lien. IRC § 6320(a).

Property to Which the Tax Lien Attaches

The federal tax lien attaches to all property and rights to property of the taxpayer. This is a very broad concept and includes not only items which are typically thought of as property, e.g., tangible items and “things,” but also intangible items and “rights” which a taxpayer may have but are not necessarily marketable. The only exception is that the lien does not attach to any interest of a Native American in restricted land held by the United States. Treas. Reg. § 301.6321-1.

The courts have interpreted this very broad language to include property of greatly varying natures, as well as future interests, contingent interests, and executory contracts.

• Future interests . The fact that a taxpayer’s enjoyment of a “right to property” may be postponed does not prevent attachment. If a taxpayer has an unqualified fixed right, under trust or a contract, to receive periodic payments or distributions of property, a lien attaches to the taxpayer’s entire right regardless of when the payments or distributions will be made. Rev. Rul. 55-210, 1955-1 C.B. 544.
• Contingent interests . These are interests which a party will receive only if certain circumstances or events occur. See Fouts v. United States , 107 F.Supp.2d 815, 817 (W.D. Mich. 2000) (under state law an expectant beneficiary of an inter vivos trust has a present interest in property that is attachable).  Butsee Dominion Trust Co. of Tennessee v. United States , 7 F.3d 233 (unpublished table decision) (6th Cir. 1993) (under state law a contingent remainder person did not have an interest in property). An inter vivos trust is sometimes referred to as a “living trust.”
• Executory contracts . A lien may attach before performance under a contract. See Seaboard Surety Co. v. United States , 306 F.2d 855, 859 (9th Cir.1962) (a lien attached to the taxpayer’s rights under an executory contract which the taxpayer had assigned and, when the taxpayer performed under the contract, the government had a lien on the proceeds).  See also Randall, Sr. v. H. Nakashima & Co. , 542 F.2d 270, 274 (5th Cir. 1976) (contract rights under a partially executed contract constituted a right to property because they had a realizable value).

Once the lien has come into existence, it attaches immediately to any property acquired by the taxpayer during the existence of the lien. In other words, unlike a typical mortgage, the federal tax lien attaches to a taxpayer’s after-acquired property.

If the Service files a NFTL, the tax lien will generally have priority to a taxpayer’s after-acquired property. In  United States v. McDermott , 507 U.S. 447 (1993), the Supreme Court held that the federal tax lien had priority over a judgment lien on the taxpayer’s after-acquired property, to which the judgment lien and the federal tax lien attached simultaneously, even though the judgment lien was filed ahead of the NFTL.

State law is very significant when considering the property and rights to property to which the federal tax lien attaches. The Government looks to state law to determine a taxpayer’s rights in a particular piece of property, but federal law determines whether such interests qualify as property or rights to property. “[One] look[s] to state law to determine what rights the taxpayer has in the property the Government seeks to reach, then to federal law to determine whether the taxpayer’s state-delineated rights qualify as ‘property’ or ‘rights to property’ within the compass of federal tax lien legislation.”  United States v. Craft  , 535 U.S. 274 (2002);  Drye v. United States , 528 U.S. 49, 58 (1999).

State law does not determine whether something is property under the Internal Revenue Code. For example, in many states a liquor license is not property. Under the Internal Revenue Code, however, the question is whether the taxpayer has rights under state law. Because the taxpayer does have rights under state law, the liquor license is property under the Internal Revenue Code.  SeeDrye , 528 U.S. at 58-59.

The Government must look to state law to determine whether a taxpayer has rights in property by virtue of a civil union, domestic partnership, or similar relationship.

Real Property

Federal tax lien questions relating to the joint ownership of property generally arise when other parties claim an interest in real property otherwise subject to the federal tax lien. This issue typically arises when the Service asserts a tax lien against only one of the parties having an interest in real property which, depending on state law, is held in one of the following forms:

• Community property,
• Joint tenancy,
• Tenancy in common, or
• Tenancy by the entirety.

Community Property

The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Puerto Rico is also a community property jurisdiction. Spouses in Alaska may elect to have statutory community property rules apply to some or all of their property. Alaska St. § 34.77.010 et seq. Community property includes both real and personal property.

In most community property states, only married couples may own property as part of a community.  See Obergefell v. Hodges , 135 S. Ct. 2584 (2015) . The community property rules also apply in some states to state-created, formal relationships between non-married couples. For example, California, Nevada and Washington permit domestic partnerships to which each state applies its community property laws.

Community property law presents special problems concerning the force and effect of the federal tax lien.

Joint Tenancy

A joint tenancy may be created when the following conditions are met:

• Two or more persons become the owners of property in equal and undivided shares.

The interest of each tenant is created in the same conveyance at the same time and the interests must be equal.

Joint tenants generally have a right of survivorship. Under the right of survivorship, when a joint tenant dies, the surviving joint tenants automatically own a greater portion of the property.

By statute, some states have abolished the survivorship feature of joint tenancy.

Generally, where only one of the joint tenants owes taxes, the lien attaches to the taxpayer’s property interest and the entire property may be sold pursuant to judicial sale under IRC § 7403, although the non-liable joint tenant must be compensated from the sale proceeds. If the Service enforces the tax lien against a taxpayer’s interest in a joint tenancy and sells it, the purchaser acquires the taxpayer’s partial interest in property, but most states then treat the joint tenancy as having been converted to a tenancy in common (discussed below).  See generally ,  United States v. Rodgers , 461 U.S. 677 (1983).

In most states, if the individual, against whose property a federal tax lien attaches, dies before any of the other joint tenants, then the lien ceases to attach to the property. However, if the same individual is the last survivor of the joint tenants, the tax lien then attaches to the entire property. In a few states, however, this is not the rule. Wisconsin is an exception to the general rule: if the federal tax lien has attached to the interest of one joint tenant who then dies, the surviving joint tenant takes the property encumbered with the federal tax lien.  United States v. Librizzi  , 108 F.3d 136 (7th Cir. 1997). Connecticut is also an exception to the general rule. Conn. Gen. Stat. 47-14f. See also  Paternoster v. United States , 640 F.Supp.2d 983 (S.D. Ohio 2009). Accordingly, state law should always be consulted to determine whether there is an exception to the general rule.

Tenancy in Common

A tenancy in common is like a joint tenancy in that it creates an undivided interest in property. However, it is different from a joint tenancy in two important aspects:

• First, the interest of a tenant in common may be transferred to a third party without destroying the tenancy in common.
• Second, there is no right of survivorship in a tenancy in common.

Applying the above rules to collection, the Service may levy and sell a taxpayer’s interest in a tenancy in common. Alternatively, the Service may ask a court to foreclose the federal tax lien and sell the entire property, although the non-liable tenant in common must be compensated from the sale proceeds. Also, if a tax lien attaches to one tenant’s interest, it will survive the taxpayer’s death and continue to encumber the property in the hands of heirs or legatees.

Tenancy by the Entirety

Only spouses can hold property in a tenancy by the entirety. A tenancy by the entirety is similar to a joint tenancy in having a right of survivorship. But the tenancy by the entirety has a restriction not found with a joint tenancy: one spouse cannot transfer his or her interest without the consent of the other spouse.  See Obergefell v. Hodges , 135 S. Ct. 2584 (2015) . Some states permit real and personal property to be held as a tenancy by the entirety while others only permit real property to be held in such manner.

For many years there was uncertainty as to whether a federal tax lien could attach to the interest of only one tenant. (If both spouses were liable, the general rule was that a federal tax lien could attach to the tenancy by the entirety.) In  United States v. Craft , 535 U.S. 274 (2002), the Supreme Court provided a clear answer, holding that the federal tax lien may attach to the tenancy by the entirety when only one spouse had a federal tax liability.  Notice 2003-60, 2003-39 I.R.B. 643  addressed the application of  Craft  to different situations. In summary, the Notice stated the following:

• The federal tax lien attaches to all the property and rights to property of the taxpayer. The Court’s decision confirms that a taxpayer’s property and rights to property have always included any rights that the taxpayer may have in entireties property under state law. The Court’s decision, therefore, does not represent new law and does not affect other law applicable to federal tax liens and federal tax collection. For example, the Craft  decision does not change any limitation on the ability of the Service to rescind an accepted offer in compromise or terminate an accepted installment agreement.
• As a matter of administrative policy, the Service will, under certain circumstances, not apply Craft , with respect to certain interests created before  Craft , to the detriment of third parties who may have reasonably relied on the belief that state law prevents the attachment of the federal tax lien.
• The administrative sale of entireties property subject to the federal tax lien presents practical problems that limit the usefulness of the Service’s seizure and sale procedures. Levying on cash and cash equivalents held as entireties property is considerably less problematic and will be used by the Service in appropriate cases.
• Because of the potential adverse consequences to the non-liable spouse of the taxpayer, the use of lien foreclosure for entireties property subject to the federal tax lien will be determined on a case-by-case basis. See United States v. Rodgers , 461 U.S. 677 (1983) (IRC § 7403 authorizes foreclosure sale of entire jointly-owned property for separate tax liability of one spouse, but non-liable spouse is entitled to compensation from sale proceeds for loss of her share of the property).
• As a general rule, the value of the taxpayer’s interest in entireties property will be deemed to be one-half. Accord Popky v. United States , 419 F.3d 242, 245 (3d Cir. 2005);  United States v. Barr , 617 F.3d 370, 373 (6th Cir. 2010),  denied , 131 S. Ct. 1678 (2011).  Butsee Pletz v. United States , 221 F.3d 1114, 1117-18 (9th Cir. 2000) (using actuarial tables).  Craft  declined to address the valuation of each spouse’s individual interest in the property. 535 U.S. at 289.
• Where there has been a sale or other transfer of entireties property subject to the federal tax lien that does not provide for the discharge of the lien, whether the transfer is to the non-liable spouse or a third party, the lien thereafter encumbers a one-half interest in the property held by the transferee.

Equitable Conversion

Some states recognize the doctrine of equitable conversion, which provides that a purchaser acquires equitable title to property when the unrecorded contract for sale is executed. Although the seller retains bare legal title to the property, the seller’s equity interest is in the right to the balance of the purchase money. The seller holds legal title in trust for the purchaser.

Some states extend the doctrine of equitable conversion to a lender who secures the interest with a mortgage or deed of trust.

Personal Property

Personal property is defined generally as everything that can be owned that is not real property. Tangible property is defined generally as personal property that has physical form and is moveable.

The Service takes collection action against a variety of types of personal property, including automobiles, trucks, boats, goods, bank accounts, wages and benefits, interests in trusts, and partnership interests.

Cash and Rights to Cash

The federal tax lien attaches to a taxpayer’s interest in a bank account, even when the bank account is in the joint names of the taxpayer and others.  United States v. National Bank of Commerce , 472 U.S. 713 (1985). This means that the lien reaches a taxpayer’s unqualified right to withdraw all of the money in the account without the consent of the other account holder. However, the right of a taxpayer joint depositor to withdraw funds from a joint bank account is provisional and subject to a later claim by a co-depositor that the money in fact belongs to him or her.

The federal tax lien attaches to a taxpayer’s wages as the wages become his property and rights to property. State laws shielding some portion of a debtor’s wages from collection do not apply to the Service, as the collection of federal taxes is a matter of federal supremacy.

In many situations, the Service loses its federal tax lien on money when a third party acquires the money in exchange for fair value. This occurs under IRC § 6323(b)(1)(A), which provides a superpriority for a purchaser of a security if the purchaser has no actual knowledge of the federal tax lien. Treas. Reg. § 301.6323(h)-1(d) defines a security to include negotiable instruments and money.

Partnership and Other Joint Interests

It is often difficult to determine a partner-taxpayer’s interest in a partnership or other joint interest to which a federal tax lien has attached. Generally speaking, a partner-taxpayer’s interest in either a partnership or a joint venture is only a share in the equity in the assets; that is, the excess of assets over liabilities.  United States v. Kaufman , 267 U.S. 408 (1925). Note that a partnership may own both real and personal property in the name of the partnership. If a federal tax lien exists on the partner-taxpayer’s property, the federal tax lien would not attach to the partnership’s property.  See Rev. Rul. 73-24, 1973-1 C.B. 602 (addressing whether partnership account is subject to levy to satisfy tax liability of individual partner).

Frequent and regular partnership “draws” which are advances or loans on annual profits are subject to a lien (and may be levied as salary or wages).  United States v. Moskowitz, Passman & Edelman , 603 F.3d 162 (2d Cir 2010).

Another issue that arises with respect to partnerships is whether the federal tax lien attaches to a general partner’s individual property in connection with an assessment made against the partnership for a partnership tax liability. In  United States v. Galletti , 541 U.S. 114 (2004), the Supreme Court held that a timely assessment of a partnership’s employment tax liability permits the Service to collect the liability from the individual partners. Because the partners are derivatively liable for the taxes under state law, the assessment and notice and demand upon the partnership gave rise to the federal lien both on partnership and partner property.

Trusts and Beneficial Interests

A trust is a state-law created entity where one party holds property for the benefit of another. The following are terms generally used in connection with trusts:

• The creator of the trust is referred to as the “grantor” or “settlor.”
• The property held by the trust is called the “res,” “corpus,” “principal” or “remainder.” Income generated by the corpus is called income.
• The person holding the property for the benefit of the other person is called the “trustee” or “fiduciary.”
• The person benefitting from the trust is called the “beneficiary.” A beneficiary may only be entitled to income, principal or both, depending on the provisions of the trust.
• A “revocable” trust is one where under the terms of the trust, the grantor/settlor reserves the right to dissolve the trust and take the property back.
• An “irrevocable” trust is one that the grantor/settlor cannot dissolve and cannot take the property back.

If the taxpayer is the grantor or settlor of a trust, the validity of the trust must be determined under applicable state law. If the grantor reserves a substantial interest or unrestricted control over the management of the operations that is not for the benefit of the purported beneficiary, the grantor remains the owner of the property and the trust will be ignored. For example, property in a family trust that is a sham – the grantors attempt to reduce their taxes by putting the property in trust, while retaining the use and benefits of the property – is subject to collection action to satisfy the grantors‘ liability.  Whitesel Family Estate v. United States , 84-2 U.S. Tax Cas. (CCH) ¶ 9890 (S.D. Ohio 1984);  Edwards Family Trust v. United States , 572 F. Supp. 22 (D. N.M. 1983).

If the taxpayer is the beneficiary of a trust, a federal tax lien will attach to the taxpayer’s beneficial interest in the trust. This determination is made by reference to the trust instrument itself, with the appropriate state law governing construction of the terms of the instrument or the resolution of any ambiguities in the instrument. In some cases the lien will attach to the corpus of the trust and the income payable to the beneficiary. In other cases the lien will attach only to the income as it becomes payable to the beneficiary, and in a few cases it may not attach to either the income or the corpus. The latter situation may arise where the trustee has the unrestricted power of disposition of the trust income; i.e., where he/she may legally refuse to make any further distribution to the taxpayer-beneficiary and instead make the distribution to other beneficiaries or simply accumulate the income.

The trust instrument can only determine the property right of the beneficiary (e.g., the taxpayer) in the trust corpus and income; the trust instrument itself cannot determine the effect of the federal tax lien upon that right. Thus, a so-called “spendthrift” trust may by its terms confer certain specific benefits upon a beneficiary and then purport to restrict the rights of creditors to reach those benefits. Such restrictions are not effective to remove those benefits from the reach of the federal tax lien, regardless of whether under the appropriate state law a “spendthrift” trust is regarded as valid in all respects.  Bank One Ohio Trust Co. v. United States , 80 F.3d 173 (6th Cir. 1996).

Because the validity of a trust and the taxpayer’s rights to trust property are highly dependent upon the particular facts of the case, the terms of the trust agreement, and applicable state law, Area Counsel should be consulted whenever these issues arise.

Intangible Property

Intangible property is personal property which lacks a physical existence but is represented by physical evidence. Items in this category include certificates of stock, bonds, promissory notes, licenses, goodwill, debts owed to the taxpayer, patents, copyrights, trademarks, franchises and “choses in action.”

A chose in action is a personal right not reduced to possession and recoverable by a suit at law. A plaintiff’s cause of action in tort or contract against a defendant is an example of a chose in action.  United States v. Stonehill , 83 F.3d 1156 (9th Cir. 1996),  cert. denied , 519 U.S. 992 (1996).

Exempt Property

State laws exempting a debtor’s property from creditors do not affect the reach of the federal tax lien.  United States v. Bess , 357 U.S. 51 (1958);  Commissioner v. Stern , 357 U.S. 39 (1958). Similarly, while state law may prevent a beneficiary of a spendthrift trust from transferring his or her interest to third parties, the beneficiary’s interest remains property subject to the federal tax lien.

Terminable Interests

Terminable interests are interests that a taxpayer may have that, by definition, terminate upon the death of the party holding the interest.  These may include a life estate in property, or a contract right that will terminate at some time ( e.g., an option).

The federal tax lien may attach to such an interest before it terminates. However, once the interest terminates, the federal tax lien on that interest also terminates.  United States v. Swan , 467 F.3d 655 (7th Cir. 2006); Rev. Rul. 54-154, 1954-1 C.B. 277.

Similarly, in the case of a life estate, the federal tax lien clearly attaches to the life tenant’s interest and may be enforced against that interest so long as the life tenant lives. However, upon the death of the life tenant, the lien ceases to attach to the property since the Government’s tax lien rights do not exceed the taxpayer’s right to the property.

Property in the Custody of a Court

When a taxpayer’s property is within the jurisdiction of and under the control of a state or federal court, such property is referred to as being in “custodia legis.” This is a judicial doctrine. In most situations, courts recognize that a lien may attach to property held in the court’s custody.  See Dragstrem v. Obermeyer  549 F.2d 20 (7th Cir. 1977).

There may be situations, however, when the federal tax lien will not attach to property held in the court’s custody. For example, if an assessment has not been made prior to the transfer of the taxpayer’s property to a state court receiver and the taxpayer has no property interest or rights to property after the transfer, then the federal tax lien will not attach to the property held by the receiver.

Each state decides whether the taxpayer is divested of his interest upon the transfer.

The fact that the Government may not have a lien on property in custodia legis does not prevent the Government from collecting the tax liability in the judicial proceeding that administers the property. The tax lien will attach to any property of the taxpayer not in the custody of the court and will attach to any property returned to the taxpayer upon termination of the court proceedings, such property being in the nature of after-acquired property.

In bankruptcy cases, the discharge of the debtor-taxpayer from a tax liability may prevent the tax lien from attaching to after-acquired property.

Property Held By Third Parties

Attempting to avoid the imminent attachment of the federal tax lien, taxpayers have transferred their assets to legal entities that they or their friends or relatives control. However, the federal tax lien extends to property held by a third party if that third party is either the alter ego or the nominee of the taxpayer.  Attempts to improperly use an alter ego or nominee may be factors that increase the risk of criminal exposure. The factors that are relevant in determining whether such a situation exists are similar to the factors which are used in deciding whether a taxpayer has fraudulently conveyed property to keep it from the reach of creditors.

This section outlines some of the most significant elements in determining whether the federal tax lien attaches to property held by a taxpayer’s alter ego or nominee. Note that these two doctrines are legally distinct.  Oxford Capital Corp. v. United States , 211 F.3d 280 (5th Cir. 2000).

• “Alter egos” connote legally distinct entities which are so intermixed that their affairs (and assets) are not readily separable.
• “Nominees” connote readily separable persons or entities, with one holding certain specific property for the exclusive use and enjoyment of the other.

The terms often interchange or overlap, but “alter egos” are usually corporate and business entities controlled by the taxpayer, whereas “nominees” are usually individuals who clearly have a separate physical identity.

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. Using an alter ego theory, if an individual is the alter ego of a corporate taxpayer or other legally distinct entity, then that individual’s assets may be used to satisfy the debts of the corporate taxpayer. This is sometimes called “piercing the corporate veil.”

Similarly, if a corporation or other legally distinct entity is the alter ego of a taxpayer, then the assets of that entity may be used to satisfy the debts of the individual taxpayer. This is sometimes called “reverse piercing of the corporate veil.”

An alter ego generally involves a sham corporation used to avoid legal obligations. To establish an alter ego, such that an alter ego Notice of Federal Tax Lien may be filed, it must be shown that the shareholders disregarded the corporate entity and made it an instrumentality for the transactions of their own affairs.

The IRS’s position is that federal common law, rather than state law, governs alter ego status. See Chief Counsel Notice CC-2012-002 (Dec. 2, 2011).

No one factor determines whether an alter ego situation is present, but a number of factors taken together may. The following list is neither exhaustive nor exclusive, but alter ego situations typically involve one or more of the following:

• Commingling of corporate and personal finances and use of corporate funds to pay personal expenses.
• Unsecured interest-free loans between the corporation and the shareholder.
• The taxpayer is a shareholder, director, or officer of the corporation, or otherwise exerts substantial control over the corporation.
• The corporation is undercapitalized relative to its reasonable anticipated risks of business.
• A failure to observe corporate formalities, e.g. issuance of stock, payment of dividends, director and shareholder meetings, or the maintenance of corporate records.
• A failure to disregard the corporate fiction presents an element of injustice or “fundamental unfairness.”

In an alter ego case, a special condition NFTL is used, identifying, in the name line of the NFTL before the taxpayer’s name, the third party as the alter ego. For example, if the taxpayer is TP, and ABC Inc. is TP’s alter ego, then the NFTL name line would read “ABC, Inc., as Alter Ego of TP.”

Generally, the IRS will not assert an alter ego in transactions involving only individuals.

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. In other words, the federal tax lien extends to property “actually” owned by the taxpayer even though a third party holds “legal” title to the property as nominee. Generally speaking, the third party in a nominee situation will be either another individual or a trust.

A nominee situation generally 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 really the taxpayer that owns the property and who enjoys its full use and benefit.

No one factor determines whether a nominee situation is present, but a number of factors taken together may. The following list is neither exhaustive nor exclusive, but nominee situations typically involve one or more of the following:

• The taxpayer previously owned the property.
• The nominee paid little or no consideration for the property.
• The taxpayer retains possession or control of the property.
• The taxpayer continues to use and enjoy the property conveyed just as the taxpayer had before such conveyance.
• The taxpayer pays all or most of the expenses of the property.
• The conveyance was for tax avoidance purposes.

The Service’s NFTL in a nominee situation is identical to the standard NFTL, except that the nominee is identified as the name of the taxpayer. For example, if the taxpayer is TP, and My Brother-In-Law or My Trust is TP’s nominee, then the name of the taxpayer on the nominee NFTL would be “My Brother-In-Law or My Trust, Nominee of TP.”

Unlike the alter ego situation, nominee situations usually involve specific pieces of a taxpayer’s property that were conveyed to the nominee. Since the federal tax lien only attaches to property actually “owned” by the taxpayer, it may not reach all property that is, in fact, actually owned by the nominee. Therefore, the NFTL in a nominee situation will usually contain a notation on its face that the lien is filed to attach specifically to certain identified property. This property must be specifically identified and described in the NFTL.

In the nominee lien context, courts have recognized that the language of section 6321 “is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have.” United States v. Natl. Bank of Commerce, 472 U.S. 713, 719-720 [56 AFTR 2d 85-5210] (1985); see also Drye v. United States, 528 U.S. 49, 56 [84 AFTR 2d 99-7160] (1999). Among the property interests reached by section 6321 is an equitable interest owned by or for the benefit of a taxpayer in property titled in the name of a nominee. G.M. Leasing Corp. v. United States, 429 U.S. 338, 350-351 [39 AFTR 2d 77-475] (1977); United States v. Miller Bros. Constr. Co., 505 F.2d 1031 [34 AFTR 2d 74- 6241] (10th Cir. 1974).  Section 6321 authorizes the Government, among other things, to file a nominee NFTL against property of a taxpayer in the hands of an alter ego or nominee. G.M. Leasing Corp. v. United States, supra at 351.

A nominee NFTL lien may be used whenever legal title to property is held by a third party but equitable ownership, in whole or in part, resides with the taxpayer. G.M. Leasing Corp. v. United States, supra. It enables the Commissioner to perfect a lien under section 6323 on property in which a taxpayer has an interest that is titled in the name of a third party. Id.; see also Drye v. United States, 528 U.S. 49 [84 AFTR 2d 99-7160] (1999) (holding that a disclaimer by the sole heir of an intestate decedent did not prevent a Federal tax lien with regard to the heir’s unpaid tax liabilities from attaching to his inheritance); Wilkinson v. United States, 770 F. Supp. 1085 (W.D.N.C. 1991); United States v. Drexler,  60 AFTR 2d 87-5091 [60 AFTR 2d 87- 5091], 87-2 USTC par. 9493 [60 AFTR 2d 87-5091] (E.D. Okla. 1985).

Disclaimers and Renunciations

State laws generally provide that a recipient does not have to accept a gift or transfer. Such transfers are generally inheritances, devises, bequests, gifts, and marital interests upon divorce or death of a spouse. To avoid the transfer, state law allows the recipient to “disclaim” or “disavow” or “renounce” such transfers. Typically, the operation of state law can create a legal fiction that the recipient of such transfers never received the property in question by retroactively treating the disclaimer as having occurred prior to the receipt of the property.

The issue is whether a taxpayer-recipient’s disclaimer will prevent the federal tax lien from attaching to the property. In  Drye v. United States , 528 U.S. 49 (1999), the Supreme Court held that such a disclaimer will not prevent a federal tax lien from attaching to the property. Similarly, even though a spouse’s renunciation of a marital interest may be treated as retroactive under state law, that state-law disclaimer does not determine the spouse’s liability for federal tax on her share of community income realized before the renunciation.  United States v. Mitchell , 403 U.S. 190 (1971).

“Retroactive” or “relation-back” state laws also do not prevent a federal tax lien from attaching to property. Treas. Reg. § 301.6323(h)-1(a)(2)(B);  Brent v. Commissioner , 630 F.2d 356 (5th Cir. 1980);  Daine v. Commissioner , 168 F.2d 449 (2nd Cir. 1948);  Eisenberg v. Commissioner , 161 F.2d 506 (3d Cir. 1947),  cert. denied , 332 U.S. 767 (1947).

Same-sex Marriage and Legally-Recognized Relationships

The recognition of same-sex marriage and the creation of formal relationships other than marriage may give taxpayers property rights they previously did not have. Federal tax liens will attach to these property rights and the Service will be able to levy on these rights. Some states allow opposite and same-sex couples to enter into other formal, legal relationships that confer rights and benefits similar to those provided by marriage. These relationships include civil unions, registered domestic partnerships, reciprocal beneficiaries, and designated beneficiaries. Among the rights conferred on members of the state-created legal relationships are:

Priority of Tax Liens: Specially Protected Competing Interests

After notice and demand for payment, the federal tax lien arises and relates back to the assessment date. Congress recognized that it was difficult to conduct business when creditors were unaware of the Service’s assessment lien. Consequently, Congress enacted the forerunner of IRC § 6323(a) to provide that a NFTL must be filed in order to have priority over certain creditors. Today, IRC § 6323(a) provides, in part, that “[the] lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor until notice thereof … has been filed …”

IRC § 6323(a) applies to the Service in a variety of situations including interpleaders and lien foreclosures. In lien priority disputes, the Service must determine which claims against the taxpayer’s property will be satisfied first, which second, and so on down the order of priority until the value of the property is exhausted. If a purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor with a claim to the taxpayer’s property perfects its claim prior to the filing of a NFTL, then that claim is entitled to priority over the tax lien.

The parties listed in IRC § 6323(a) are protected against unfiled NFTLs, notwithstanding actual knowledge of the statutory assessment lien. Rev. Rul. 2003-108, 2003-2 C.B. 963.

If a NFTL has not been filed prior to the sale of a taxpayer’s property, a purchaser takes the property free of the federal tax lien. IRC § 6323(a).

A purchaser is a person who, for adequate and full consideration in money or money’s worth, acquires an interest (other than a lien or security interest) in property which is valid under local law as against subsequent purchasers without actual notice. IRC § 6323(h)(6).

A purchaser must acquire the property pursuant to a sale. The amount paid must bear some reasonable relationship to the value of the property acquired. However, this requirement of full and adequate consideration does not preclude a bona fide bargain purchase or a purchaser who has not completed performance of his/her obligation, such as the completion of installment payments.

A purchaser is also one who has acquired a lease of property, an executory contract to purchase or lease property, one who has an option to purchase or lease property or an interest in it, or one who has an option to renew or extend a lease on property, if the interest acquired is not a lien or security interest.

Some states recognize  the doctrine of equitable conversion, which provides that a purchaser acquires equitable title to property when the unrecorded contract for sale is executed. Equitable conversion is only relevant where the contract for sale is executed before the NFTL is filed but recordation occurs after the NFTL is filed or not at all. Even in states that recognize equitable conversion, the purchaser will not take the property free of the federal tax lien unless they qualify as a “purchaser” under IRC 6323(h)(6).  Ruggerio v. United States , 2005-2 USTC ¶ 50,645 (4th Cir. 2005),  cert. denied , 549 U.S. 811 (2006). In  Ruggerio , which is a Maryland case, an assessment lien attached to the taxpayer-seller’s real property. Subsequently, the taxpayer-seller contracted to convey the real property to buyer. The Service filed a NFTL before the closing date on the real property. The Fourth Circuit held that buyer took the real property with the federal tax lien attached to it, because the Service filed a NFTL before the buyer qualified as a purchaser under IRC § 6323(a).

State Law Guides contain information on equitable conversion and its impact on the priority of the federal tax lien in relation to purchasers.

Judgment Lien Creditor

If a NFTL has not been filed prior to a creditor perfecting a judgment lien, the judgment lien has priority over the federal tax lien. In order to be a judgment lien creditor, the creditor must obtain a valid judgment in a court of record and of competent jurisdiction for the recovery of specifically designated property or for a certain sum of money. Treas. Reg. § 301.6323(h)-1(g).

In the case of a judgment for the recovery of a certain sum of money, a claimant must have a perfected lien on the property involved. This requires:

• the identity of the lienor,
• the property subject to the lien, and
• the amount of the lien be established.

If state law requires a recording of the judgment before there is a lien on the real property good against third parties, the creditor does not qualify as a judgment lien creditor until that recordation date. If state law requires a levy or seizure of personal property before there is a lien on the personal property that is good against third parties, then there must be a levy or seizure of the personal property before the notice of federal tax lien is filed in order for a judgment lien creditor to have priority.

Mechanic’s Lienor

If a NFTL has not been filed prior to a creditor perfecting a mechanic’s lien, the mechanic’s lien has priority over the federal tax lien.

IRC § 6323(h)(2) defines a mechanic’s lienor as a person who, under local law, has a lien on real property (or on the proceeds of a contract relating to real property) for services, labor or materials furnished in connection with the construction or improvement of the property.

For priority purposes, the lien arises on the earliest date such lien becomes valid under local law against subsequent purchasers of the property without actual notice of the tax lien but not before the mechanic begins to furnish the services, labor or materials. Thus a mechanic’s lienor, who takes all of the requisite action under local law to perfect and enforce such lien, has a mechanic’s lien from a date no earlier than the day on which the mechanic began to furnish the services, labor or materials on the job to which the lien relates.

Holder of a Security Interest

If a NFTL has not been filed prior to a creditor perfecting a security interest, the security interest has a priority over the federal tax lien. IRC § 6323(h)(1) defines a security interest as any interest acquired by written contract for the purpose of security (payment, performance, indemnity) in existing property for which the holder paid money or money’s worth and which has priority under local law over subsequent judgment liens arising out of unsecured obligations.

If a federal tax lien is invalid against an initial holder of a security interest, it is also invalid against another party that acquires the security interest, whether by purchase or otherwise.

A security interest must be in existence to prime a federal tax lien. A security interest exists at any time –

• if, at such time the property is in existence and the security interest has become protected under local law against a subsequent judgment lien and
• to the extent that, at such time, the holder has parted with money or money’s worth. See Treas. Reg. § 301.6323(h)-1(a)(1).

Thus, where a creditor fails to perfect its security interest as required by the Uniform Commercial Code, the federal tax lien will attach to the property and will be entitled to priority over the creditor.  United States v. Trigg , 465 F. 2d 1264 (8th Cir. 1972),  cert .  denied sub nom.  First State Bank of Crossett, Arkansas v. United States , 410 U.S. 909 (1973).

Local law distinguishes real property from personal property. This is important because the actions required under local law to establish the priority of the security interest against a subsequent judgment lien may differ depending on whether the property involved is real or personal property.

State law permitting relation back to perfect a state lien cannot affect the priority of the lien. Treas. Reg. § 301.6323(h)-1(a)(2)(B).

In some states, equitable conversion provides a lender priority over a NFTL filed before the lender records. Equitable conversion is only relevant where the mortgage instrument or deed of trust is executed before the NFTL is filed, but recordation occurs after the NFTL is filed or not at all. Equitable conversion provides that a lender acquires equitable title when an unrecorded mortgage or deed of trust is executed. In some states, priority is established when the mortgage or deed of trust is executed because the lender’s equitable interest is protected under local law against a subsequent judgment lien arising out of an unsecured obligation. IRC 6323(h)(1);  Susquehanna Bank v. United States , 2014-2 USTC ¶ 50492 (4th Cir. 2014). In  Susquehanna Bank , the NFTL was filed after the deed of trust securing the loan was executed, but before the deed of trust was recorded. The Fourth Circuit found that the lender’s unrecorded security interests had priority over the federal tax lien, even though the NFTL had been filed, because an equitable security interest is protected under Maryland law against subsequent judgment-lien creditors.

State Law Guides contain information on equitable conversion and its impact on the priority of the federal tax lien in relation to holders of a security interest.

Superpriorities

The Internal Revenue Code provides special protection for limited interests by giving them priority over the federal tax lien even though the interests come into existence after the filing of a NFTL. IRC § 6323(b). These special interests are called “superpriorities.”

There may be some overlapping among categories of “superpriorities” in which event federal law provides protection if any category applies even though another may also be relevant. Should two categories of “superpriorities” apply to an interest, then the Service should use that category which gives the greatest protection to the private interest.

This “superpriority” protects the purchaser or the holder of a security interest in a “security” who at the time of purchase or at the time the security interest came into existence did not have actual notice or knowledge of the existence of the federal tax lien. IRC § 6323(b)(1). The Code defines securities to include money, stock, bonds, debentures, notes, negotiable instruments, and various other types of interests. IRC § 6323(h)(4).

A subsequent holder of a security interest is also protected if the prior holder did not have actual notice or knowledge at the time the security interest came into existence.

Motor Vehicles

This “superpriority” protects the purchaser of a motor vehicle if, at the time of purchase—

• the purchaser did not have actual notice or knowledge of the existence of the federal tax lien; and
• before the purchaser has actual notice or knowledge, the purchaser has actual possession of the motor vehicle and has not thereafter relinquished actual possession to the seller or his/her agent. IRC § 6323(b)(2).

Personal Property Purchased at Retail

This “superpriority” protects the purchaser of tangible personal property purchased at a retail sale unless at the time of purchase the purchaser intends the purchase to (or knows the purchase will) hinder, evade or defeat the collection of the federal tax. IRC § 6323(b)(3).

“Retail sale” means a sale made in the ordinary course of the seller’s trade or business of tangible personal property of which the seller is the owner. It includes a sale in the customary retail quantities by a seller who is going out of business but not a bulk sale or an auction sale in which goods are offered in quantities substantially greater than are customary in the ordinary course of the seller’s trade or business or an auction sale where the owner is not in the business of selling such goods. Treas. Reg. § 301.6323(b)-1(c)(2).

Personal Property Purchased in Casual Sale

This “superpriority” protects a purchaser of household goods, personal effects or other tangible personal property exempt from levy under IRC § 6334(a). It encompasses items purchased (other than for resale) in a casual sale for less than $1,590 (as of January 1, 2019). IRC § 6323(b)(4). This amount is adjusted annually for inflation. See Rev. Proc. 2018-57, 2018-49 I.R.B. 827.  Rev. Proc. 2018-57, 2018-49 I.R.B. 827 . These sales include “garage sales” or “tag sales.”

A casual sale is a sale not made in the ordinary course of the seller’s trade or business. Protection is afforded only if the purchaser does not have actual notice or knowledge of the existence of the federal tax lien or that the sale is one of a series of sales which means that the seller plans to dispose of, in separate transactions, substantially all of his/her household goods, personal effects and other tangible personal property. See Treas. Reg. §301.6323(b)-1(d)(2). This exception applies only to tangible personal property (e.g. household goods, personal effects, wearing apparel, firearms, furniture, etc.) as defined in Treas. Reg. § 301.6334-1.

Personal Property Subject to Possessory Lien

This “superpriority” protects someone in possession of tangible personal property subject to a lien under local law securing the reasonable price of the repair or improvement of that property. IRC § 6323(b)(5).

Thus, for example, if state law gives an automobile mechanic a lien for the repair bill and the right to retain possession of the repaired automobile as security for payment of the repair bill, and the mechanic retains continuous possession of the automobile, a federal tax lien which has attached to the automobile will not be valid to the extent of the repair bill.

Real Property Tax and Special Assessment Liens

This “superpriority” protects certain specified state and local tax liens against real property. IRC § 6323(b)(6) applies if state or local law entitles such liens to priority over security interests in such property which are prior in time, and such lien secures payment of one of the following three types of taxes or charges:

• A tax of general application levied by any taxing authority based upon the value of such property. For example, real estate tax.
• A special assessment imposed directly upon such property by any taxing authority, if such assessment is imposed for the purpose of defraying the cost of any public improvement. For example, sewers, streets, or sidewalks.
• A charge for utilities or public services furnished to such property by the United States, a state or political subdivision thereof, or an instrumentality of any one or more of the foregoing.

If real estate taxes (whenever they accrue) are ahead of mortgages under local law, they will also be ahead of federal tax liens. The result will be the same if a special assessment lien arises after the federal tax lien is in existence. The same priorities apply in the case of charges for utilities or public services.

This superpriority category does not include other state and local tax liens arising for personal property taxes, state or local income taxes, franchise taxes, etc.

Residential Property Subject to a Mechanic’s Lien for Certain Repairs and Improvements

This “superpriority” protects lienors whose liens arise from the repair or improvement of certain real property. IRC § 6323(b)(7).

The property must be a personal residence containing not more than four dwelling units with the owner occupying one of the units and the total contract price being $7,970 or less (as of January 1, 2019). This amount is adjusted annually for inflation See Rev. Proc. 2018-57, 2018-49 I.R.B. 827.  Rev. Proc. 2018-57, 2018-49 I.R.B. 827 .

Attorney’s Liens

This “superpriority” protects an attorney who, under local law, holds a lien upon, or a contract enforceable with respect to, a judgment or other amount in settlement of a claim or cause of action, to the extent of reasonable compensation for obtaining the judgment or procuring the settlement, even if the attorney has actual notice or knowledge of the filing of the notice of lien. IRC § 6323(b)(8). There is a limitation upon this absolute priority that arises with respect to a judgment or amount in settlement of a claim or a cause of action against the United States, to the extent that the United States sets off such judgment or amount against any liability of the taxpayer to the United States.

Even in those cases where the attorney’s lien enjoys the priority over the federal tax lien, it is limited to reasonable compensation. Generally, reasonable compensation means the amount customarily allowed under local law for an attorney’s services for litigating or settling a similar case or administrative claim.  SeeNorth Carolina Joint Underwriting Assn. v. Long, et al. , 2008-1 USTC ¶ 50,183 (E.D.N.C. 2008). Nevertheless reasonable compensation shall be determined on the basis of the facts and circumstances of each individual case. The priority does not apply to an attorney’s lien which may arise from the defense of a claim or cause of action against a taxpayer, except to the extent such a lien is held upon a judgment or other amount arising from the adjudication or settlement of a counterclaim in favor of the taxpayer. See Treas. Reg. § 301-6323(b)-1(h)(1).

Certain Insurance Contracts

This “superpriority” protects an insurer in a life insurance, endowment or annuity contract with a taxpayer. IRC § 6323(b)(9).

This “superpriority” applies under the following situations:

• If an insurer makes a policy loan on a life insurance policy after a notice of lien has been filed with respect to the property of the insured, the insurer is protected as against the tax lien if such insurer did not have actual notice or knowledge of the existence of the tax lien at the time the policy loan was made.
• The insurer, after actual notice or knowledge of a federal tax lien, will still have priority but only with respect to advances (including contractual interest) required to be made under an agreement entered into prior to such actual notice or knowledge.
• Thus, although an insurer will not have priority for policy loans made after the insurer has actual notice or knowledge that the policy is subject to a tax lien, the insurer may nevertheless continue to make automatic premium loans to maintain the contract in force and have priority over the federal tax lien with respect to such loans, if the agreement to make the automatic premium loans was entered into before the insurer had actual notice or knowledge.

Deposit Secured Loans

This “superpriority” protects certain institutions, including banks and building and loan associations with regard to a loan, if the loan is secured by an account with the bank. IRC 6323(b)(10). The following requirements apply:

The provisions of IRC § 6323(b)(10) apply to financial institutions described in IRC §§ 581 and 591.

• The bank must make the loan without any actual notice or knowledge of the existence of the tax lien.
• IRC § 6323(b)(10) requires that the security interest be valid under state law. Under the Uniform Commercial Code (UCC) adopted in all 50 states, a bank cannot obtain a security interest in an account if the loan is made for a consumer transaction, i.e., it is not a business loan. UCC § 9-109(d)(13) (excluding consumer loans from the scope of Article 9).

A superpriority is not a defense to a levy. Therefore, if a bank does qualify for an IRC § 6323(b)(10) superpriority, it should either:

• honor the levy and seek a timely return of wrongfully levied property under IRC § 6343(b), or
• the bank may promptly request the Service to release the levy.

If the bank timely proves that it has a IRC § 6323(b)(10) superpriority, the Service will generally release the levy. See Rev. Rul. 2006-42, 2006-2 C.B. 337.

Purchase Money Security Interest (PMSI)

A purchase money mortgage or security interest is defined under state law as a mortgage or security device taken to secure the performance of an obligation incurred in the purchase of real or personal property.

While the Internal Revenue Code does not give a PMSI priority status, pursuant to Rev. Rul. 68-57, 1968-1 C.B. 553, the Service recognizes that a PMSI will have priority over the Service’s NFTL if the PMSI is valid under local law.

With respect to personal property, Revised Article 9 of the Uniform Commercial Code defines the creation and perfection of a PMSI.

Creating the PMSI–Pursuant to a security agreement under UCC § 9-103, a PMSI arises when a creditor advances money or credit to enable the debtor-taxpayer to purchase goods (new tangible personal property), and the money loaned is actually used to acquire these specific goods. The newly purchased goods will serve as collateral for the loan. Generally, the PMSI arises in one of the following situations.

• Seller advances credit—Buyer obtains possession of the goods, giving seller a security interest in the goods pursuant to a security agreement. Seller has not received full payment.
• Bank/finance company advances money—Bank/finance company loans money to purchase goods after debtor-taxpayer signs security agreement with bank/finance company. Seller is fully paid. The burden is on the bank/finance company to prove that the money was actually used to purchase the goods. First Interstate Bank v. IRS , 930 F.2d 1521, 1526 (10th Cir. 1991). Typically, a bank/finance company meets this burden by drafting a check payable to the seller of the goods. If the bank/finance company cannot carry its burden, then it has a regular security interest, not a PMSI.

Perfecting the PMSI – In order to prime a NFTL, a creditor must perfect its PMSI.  First National Bank v. Coxson , 76-1 USTC 9450 (D.N.J. 1976). This is generally not a burden for a PMSI in consumer goods: the PMSI is automatically perfected by the security agreement. There is no filing requirement. It’s an entirely different situation for a PMSI in business goods, which must be perfected within a short period from the date that the debtor-taxpayer obtains the collateral. See UCC §§ 9-317(e), 9-324(a) and (b).

Losing a PMSI in consumer goods – Some states have adopted a transformation rule for consumer goods, i.e., a creditor may lose its PMSI in consumer goods if it allows the debtor-taxpayer to refinance or consolidate its debts. The reasoning behind the rule is that the debt restructuring transforms the “old” loan to a “new” loan with a security interest encumbering the debtor-taxpayer’s old assets. The debtor-taxpayer does not acquire any new goods with the new loan. Thus, the new loan could not create a PMSI, because, by definition, a PMSI exists only if the debtor-taxpayer acquires new goods.

Example of transformation rule:  Assume NFTL filed on January 2, 2006. Also assume finance company loans debtor-taxpayer funds to purchase a television for his personal use on February 2, 2006, and pursuant to the security agreement, finance company acquires a PMSI in the television. On April 1, 2006, because of debtor-taxpayer’s financial problems, finance company restructures the loan agreement, reducing monthly payments but extending the payment period. In some states, under the transformation rule, this would be a new loan agreement. The debtor-taxpayer did not use the new loan to acquire new consumer goods. Consequently, the creditor’s security interest under the new loan is only a regular security interest, not a PMSI. The PMSI from February 2, 2006 has been extinguished by the new agreement. Accordingly, in a lien priority dispute on June 1, 2006, the NFTL primes the finance company’s regular security agreement on the television.

The transformation rule does not apply to a PMSI in nonconsumer goods under UCC § 9-103(b). Instead, a different rule, the dual status rule, applies. The dual status rule preserves the original PMSI in a restructuring or refinancing for the original PMSI goods. After the restructuring or refinancing, the creditor has both a PMSI in the original goods and a regular security interest in other existing goods.

Example of dual status rule:  Using the preceding example with some changes, assume that debtor-taxpayer purchases the television to entertain customers at his restaurant. In this situation, the television is not a consumer good; instead, it is business equipment. When the debtor-taxpayer restructures his loan agreement on April 1, 2006, the new security agreement gives creditor a security interest in the television as well as existing tables and chairs. In a lien priority dispute on June 1, 2006, under the dual status rule, the creditor has a PMSI in the television that primes the NFTL, but the creditor has only a general security interest in the chairs and tables. The NFTL primes the general security interest in the chairs and tables.

Identifying the PMSI property – Even if a creditor establishes that a PMSI was created, in a lien priority fight the creditor must be able to identify the original property encumbered with the PMSI or traceable to the original property.  E.g. ,  Citizens Savings Bank v. Miller , 515 N.W.2d 7 (Iowa 1994).

Protected Interests Arising from Certain Financing Agreements

In limited situations, IRC § 6323(c) and (d) provide that certain claims may prime an earlier filed NFTL and act substantially in the same manner as superpriorities.

IRC § 6323(c) has three different subsections that deal with different transactions. There are, however, prerequisites that apply to all three subsections. In order for any creditor to qualify for any of the protections in section 6323(c), the creditor must show the following:

• The security interest is in “qualified property.” The definition of qualified property differs in each of the three subsections.
• There is a written agreement entered into before tax lien filing, which constitutes a commercial transactions financing agreement, a real property construction or improvement financing agreement, or an obligatory disbursement agreement.
• The security interest is protected under local law against a judgment lien arising, as of the time of the tax lien filing, out of an unsecured obligation.

Commercial Transactions Financing Agreements

IRC § 6323(c)(2) provides protection for commercial transactions financing agreements. Generally, these are loans to a taxpayer to operate a business. The creditor and the taxpayer, in the course of trade or business, agree that loans to the taxpayer will be secured by taxpayer’s commercial financing security. Security can include, but is not limited to, accounts receivable, mortgages on real property, and inventory. The agreement must be entered into before the NFTL is filed; however, priority will extend to commercial financing security acquired before the 46th day after the NFTL is filed and to advances made within 45 days of filing (or sooner if the creditor gains knowledge of the NFTL).

Alternatively, a commercial transactions financing agreement could be the purchase of commercial financing security, other than inventory, acquired by the taxpayer in the ordinary course of the taxpayer’s trade or business. Note that both the lender/purchaser and the debtor-taxpayer must have entered into the loan/sale within the ordinary course of business. This protection exists, however, for a limited time period. To be protected, the creditor must loan the funds or purchase the property from the taxpayer within 45 days of the filing of the NFTL, or (if earlier) before the lender or purchaser had actual notice or knowledge of the notice of lien filing.

The term “commercial financing security” is defined as (i) paper of a kind ordinarily arising in commercial transactions, (ii) accounts receivable, (iii) mortgages on real property, and (iv) inventory. General intangibles, such as patents or copyrights, are not included. IRC § 6323(c)(2)(C) . In the case of loans to the taxpayer, commercial financing security also includes inventory. Inventory consists of raw material and goods in process, as well as property held by the taxpayer primarily for sale to customers in the ordinary course of business. Treas. Reg § 301.6323(c)-1(c)(1).

Real Property Construction or Improvement Financing Agreement

IRC § 6323(c)(3) provides protection for interests arising from written real property construction or improvement financing agreements entered into before a NFTL is filed and which interests are given priority under state law against a judgment lien creditor as of the time of the filing of the NFTL. This protection applies to 3 different situations:

• the owner’s construction or improvement (including demolition) of real property;
• a contractor obtains financing, usually a bank loan, to construct or improve real property; or
• the raising or harvesting of a farm crop or the raising of livestock or other animals.

The first subsection addresses a taxpayer’s financing and lien for construction or improvement of the taxpayer’s home or business. IRC § 6323(c)(3)(A)(i). Pursuant to such a financing agreement, the lender takes a mortgage/lien on the taxpayer’s property undergoing construction and agrees to make distributions in the future to finance the construction.

There is no 45-day rule, i.e., disbursements can be made more than 45 days after the filing of the NFTL and the lender’s lien will still prime the NFTL.

Actual knowledge of the NFTL will not disqualify the lender, provided the written agreement predated the filing of the NFTL.

The second subsection addresses a contractor’s financing for a construction project. IRC § 6323(c)(3)(A)(ii).

Actual knowledge of the NFTL will not disqualify the lender, provided the written agreement predated the filing of the NFTL. In return for financing on the construction project, the lender acquires a security interest in the contract proceeds, not the real estate.

There is a difference between section 6323(c)(3)(A)(i), a financing agreement for construction on real property, and section 6323(c)(3)(A)(ii), an agreement to finance a construction contract. In the former situation, the lender’s lien is on the real property undergoing construction. In the latter situation, the lender’s lien is on the proceeds of the construction contract only.

The third subsection addresses a farmer’s financing to raise or harvest a crop/livestock. There is no 45-day rule, i.e., disbursements can be made more than 45 days after the filing of the NFTL and the lender’s lien will still prime the NFTL.

This subsection is relatively generous to the lender because it protects the lender’s interest in not only the crop or livestock raised, but also in any of the taxpayer’s property existing as of the filing date of the NFTL, assuming that property was listed in the security agreement.

Obligatory Disbursement Agreement

IRC § 6323(c)(4) provides protections for interests arising from an obligatory disbursement agreement, which generally requires a lender to make a payment because someone other than a taxpayer has relied on that obligation. The lender must have entered into the obligatory disbursement agreement in the course of his trade or business. A general obligatory disbursement agreement requires that on the filing date of the NFTL, the lender’s security interest must be protected against a hypothetical judgment lien creditor. Also, the taxpayer and the lender’s written agreement must provide that the lender’s duty to pay is triggered by the claim of a third party. In other words, the lender is typically paying a third party for property/services provided to the taxpayer. Under a general obligatory disbursement agreement, the protected security interest covers only two categories:

• all of the taxpayer’s property as of the filing date of the NFTL and
• after the filing date, any property traceable to the lender’s payment.

A letter of credit is a classic example of an obligatory disbursement agreement. A bank issues a letter of credit (a promise to pay the holder of the letter of credit) to Taxpayer. The Service then files a NFTL. Taxpayer later purchases property by giving the seller the letter of credit. The seller later presents letter of credit to the bank to obtain payment. The bank will have priority over the FTL with respect to all of Taxpayer’s property existing as of the date of the filing of the NFTL and the property purchased with the letter of credit after the filing of the NFTL.

Section 6323(c)(4) provides extra protection to surety agreements. A surety agreement is a special type of obligatory disbursement agreement: The surety agrees to perform a contract if the taxpayer fails to perform. The taxpayer and the surety must meet all of the procedural requirements imposed on a general obligatory disbursement agreement. For example, there must be a written contract; the duty to perform must be triggered by the claim of a third party; and prior to the filing of a NFTL, the security interest must be perfected against the claim of a hypothetical judgment lien creditor.

Sureties receive extra protection because section 6323(c)(4) expands the categories of collateral. Unlike a general obligatory disbursement that creates only two categories of collateral, a surety can look to four categories for collateral:

• All of the taxpayer’s property as of the filing of the NFTL (similar category for general obligatory payment).
• After the filing date, any of taxpayer’s property traceable to the surety’s payment (similar category for general obligatory payment).
• The proceeds of the contract for which performance was insured (an additional category).
• If the contract is to construct or improve real property, to produce goods, or to furnish services, any tangible personal property used by the taxpayer in performing the insured contract (an additional category).

IRC § 6323(d)

IRC § 6323(d) protects a creditor’s security interest for disbursements made within 45 days after the filing of the NFTL or before the lender acquires knowledge of the NFTL, if before the 45th day. As discussed below, section 6323(d) is similar to section 6323(c)(2) in some ways, but is different in other ways.

The section 6323(d) and section 6323(c)(2) commercial transaction financing protections are similar in that they both require the following:

• Prior to the filing of the NFTL, the taxpayer and the lender must sign a written agreement that creates a security interest in the encumbered property.
• As of the filing date of the NFTL, the lender’s security interest must prime a hypothetical judgment lien creditor.
• After the filing of the NFTL, the lender must not have any actual knowledge of the NFTL when it makes the loan.
• Such loan must be made within 45 days of the filing of the NFTL. If, within the 45 day period, the lender acquires knowledge of the NFTL before making the loan, then the 45 days is shortened to the day on which the knowledge is acquired.

Section 6323(d) and section 6323(c)(2) differ as to the types of property and the time when the taxpayer acquired the property. Specifically, section 6323(d) applies to all of the taxpayer’s property as of the date of the filing of the NFTL. In contrast, section 6323(c)(2) applies to specific property acquired by the taxpayer before the 46th day after the filing of the NFTL. Section 6323(d) applies to a larger pool of property; section 6323(c)(2) may apply to property acquired after the NFTL is filed.

Priority of Interest and Expenses

Interest and certain expenses may enjoy the same priority as the lien or security interest to which they relate. This is the case if under local law they are added to and become a part of the lien or security interest. The types of interest listed in IRC § 6323(e) are the following:

• Interest or carrying charges (including finance and service charges) on the obligation secured by a lien or security interest.
• Reasonable expenses of an indenture trustee (such as a trustee under a deed of trust) or agent holding a security interest.
• Reasonable expenses incurred in collecting by foreclosure and enforcing a secured obligation (including reasonable attorney’s fees).
• Reasonable costs of insuring, (fire and casualty insurance for instance) and preserving or repairing the property subject to the lien or security interest.
• Reasonable costs of insuring payment of the obligation secured (such as mortgage insurance).
• Amounts paid by the holder of a lien or security interest to satisfy another lien on the property where this other lien has priority over the federal tax lien.

An example of this last situation would be if both a security interest and a statutory lien for state sales taxes have priority over a federal tax lien. In that situation, the holder of the protected security interest may discharge the sales tax lien and increase the amount so expended, even though under local law he/she is not subrogated to the rights of the holder of the sales tax lien. However, if the holder of the security interest is, under local law, subrogated to the rights of the holder of the sales tax lien, he/she may also be entitled to any additional protection afforded by IRC § 6323(i)(2). Treas. Reg. § 301.6323(e)-1(d).

Priority of Tax Liens: The Competing Choate Lien

IRC § 6323 does not cover all of the competing lien interests that could attach to a taxpayer’s property, e.g., a state tax lien. To resolve the competing priority claims of these other interests, a court will use the choateness test, which was developed by Supreme Court case law. This test arises under federal law and applies federal rules to determine lien priority, not state rules.

The choateness test follows the general rule for resolving lien priorities: the lien that is “first in time” is “first in right.” The federal tax lien is choate as of the assessment date. (The filing of the NFTL is irrelevant under the choateness test.) However, to be considered first in time, the nonfederal lien must be “choate,” that is, sufficiently specific, when the federal lien arises. A state-created lien is not choate until the following three elements are all established:

• the amount of the lien.

United States v. City of New Britain,  347 U.S. 81 (1954). Failure to meet any one of these conditions forecloses priority over the federal lien, even if under state law the nonfederal lien was enforceable for all purposes when the federal lien arose.

In cases involving state and local tax liens, the Supreme Court has indicated that a state or local tax lien that attaches to “all property and rights to property” may be sufficiently choate so as to obtain priority over a later arising federal tax lien.  United States v. State of Vermont , 377 U.S. 351 (1964). Therefore, state, county and municipal tax liens may be regarded as choate when: the identity of the lienor is known; the amount of the lien has been finally fixed; and the lien has attached to the taxpayer’s property by virtue of statute or ordinance so as to authorize enforcement by the state or local taxing authority without substantial further administrative remedy being available to the taxpayer. If the state or local tax lien meets these criteria, the rule of first in time, first in right, should then be applied to determine priorities.

Most choateness litigation arises in lien priority disputes with states. In this context, choateness is a federal law test, not a state law test.  In re Priest , 712 F.2d 1326 (9th Cir. 1983),  mod . 725 F.2d 477 (1984) (holding a state law ineffective which stated that a tax lien arose when the tax return was “due and payable,” or on the date the return was required to be filed). A state-created lien arises when the state takes administrative steps to fix the taxpayer’s liability – mere receipt of a tax return does not make the state tax lien choate.  Minnesota v. United States , 184 F.3d 725 (8th Cir. 1999),  cert. denied , 528 U.S. 1075 (2000).

Lien Priority Disputes Arranged by Topic

Assignments.

An assignment is a transfer of intangible property, frequently an account receivable. An assignee, the party receiving the assigned rights, may meet the requirements of the definition of a purchaser under IRC § 6323(h)(6). Whether an assignee is a purchaser within the meaning of the above subsection is a federal question.  SeeUnited States v. Gilbert Associates , 345 U.S. 361 (1953). An assignee who fails to qualify as a purchaser may try to argue that it has a security interest under IRC § 6323(h)(1).

Attachment Liens

An attachment lien, provided for under most state statutes, may arise upon the filing of a creditor’s suit and, under state law, will be taken as of the time the attaching creditor acquired a lien on the debtor’s property. This is done by the doctrine of “relation-back” which relates the subsequently acquired judgment lien back to the date of the attachment lien. This relation back doctrine does not apply to priority disputes with the federal tax lien.  United States v. Security Trust and Savings Bank , 340 U.S. 47 (1950).

In cases involving the determination of priority between a federal tax lien and such an attachment lien, the attachment lien is deemed inchoate until perfected by a final judgment.

Circular Priority

Circular priority describes a situation where A’s lien is senior to the federal tax lien; the federal tax lien is senior to B’s lien; but state law makes B’s lien senior to A’s lien.

In  United States v. City of New Britain , 347 U.S. 81(1954), the Supreme Court resolved the circular priority problem by providing:

• first, that the portion of the fund for which federal law creates a lien superior to that of the Government’s tax lien is set aside;
• second, the federal tax claim is paid; and
• third, the reserved portion of the fund is distributed among competing claimants according to state law.

Today, circular priority situations generally arise in lien priority disputes with secured creditors under the UCC. Most potential circular priority issues were eliminated when the IRC § 6323(b) superpriority provisions were enacted.

Dower and Curtesy

The wife’s right of dower and the husband’s right of curtesy are limited estates in the real property of the respective spouses which some states still recognize at common law.

Many states have abolished the common law dower and curtesy in favor of a statutory right of dower in either surviving spouse as to both real and personal property.

Some states treat dower and curtesy as creating a property right as of the marriage: a spouse’s dower or curtesy interest or statutory rights cannot be defeated by the other spouse’s conveyances or alienations after the marriage or by a lien in favor of the other spouse’s creditors that becomes effective after the marriage. In these states, if the marriage occurred before the Service assesses the tax liability of one spouse, then the federal tax lien is junior to the non-liable spouse’s dower/curtesy interest. Rev. Rul. 79-399, 1979-2 C.B. 398.

Foreclosure Costs

As discussed in IRM 5.17.2.6.7, if the holder of a security interest or lien has priority over a federal tax lien, then certain expenses also will have priority, provided such expenses are “reasonable” and also would have priority under local law. IRC § 6323(e).

In effect, both direct expenses of sale, such as advertising, auctioneer’s expenses and any other necessary expenses of the sale and items of cost which are included in IRC § 6323(e), which are not normally direct expenses, will have priority over the federal tax lien if the original obligation is a lien or security interest and has priority over the tax lien.

Forfeited Property

Most states have laws providing that property used in connection with the commission of a crime shall be seized; and if the accused is convicted of the criminal charge, the property is to be forfeited. IRC § 6323(i)(3) provides that a forfeiture under local law of property seized by a law enforcement agency of a state, county, or other local governmental subdivision shall relate back to the time of the seizure, except that this paragraph shall not apply to the extent that under local law the holder of an intervening claim or interest would have priority over the interest of the state, county, or other local governmental subdivision in the property.

For example, assume that a state seizes taxpayer’s car in January 2013; the Service makes an assessment against taxpayer in February 2013, and the state obtains an order of forfeiture in August 2013. Also assume that under local law the holder of an intervening claim or interest would not have priority over the state’s interest in the car. In this situation, the forfeiture relates back to the seizure, so essentially the state owned the car as of January 2013 and the car would no longer be property of the taxpayer to which the federal tax lien would attach as of February 2013.

Home Equity Line of Credit or Open-end Mortgage

An “open-end” mortgage or home equity line of credit is different from a typical mortgage. Frequently, these mortgages provide for an initial loan at the time that the parties sign the mortgage, and the borrower has the discretion to request future advances after the mortgage is recorded.

If the Service files a NFTL and the lender makes a future advance within 45 days of the filing of the NFTL, the lender may be entitled to protection under IRC § 6323(d).  Bank of America v. Fletcher , 342 F.Supp.2d 1009 (N.D. Okl. 2004).

Insurance and Insurance Loans

Section 6322 of the Code provides that the lien imposed by section 6321 of the Code upon all the property and rights to property of any person liable to pay any tax arises at the time assessment is made.

In UNITED STATES V. BESS, 357 U.S. 51 (1958), the Supreme Court held that the cash surrender value of an insurance policy was property to which a lien attached and that the lien followed the property into the hands of the beneficiary.

In the discussion of superpriorities, it was stated that a lien is not valid against life insurance, endowment or annuity contracts as against the insurer at any time before the insurer had actual notice or knowledge of the lien. Even if the company had such notice or knowledge, it could still make advances for automatic premium loans to maintain the contract if the agreement to make the advances was entered into before the insurer had actual notice or knowledge of the lien. In addition, if a levy had been served on the insurer and the levy was satisfied, the insurer would have priority for subsequent policy loans until a new notice of levy was served on the insurer.

Policy loans are those loans made to an insured by an insurance company without causing the policy to be terminated. Automatic premium loans are loans for the payment of premiums made against the cash surrender value of the insured’s policy, but which the company is required to make by the terms of the contract of insurance itself by reason of the insured’s default in premium payments.

Policy loans will prime the federal tax lien if they are made by the insurance company before the insurer has actual notice or knowledge of the existence of the federal tax lien. IRC § 6323(b)(9)(A).

Automatic premium loans will prime the federal tax lien if the agreement to make advances was entered into before the insurer had actual notice or knowledge of the lien. IRC § 6323(b)(9)(B).

If the Service serves a notice of levy on the insurer and that levy is satisfied by the insurer, then that notice of levy will not constitute a notice of a lien until the Service delivers a new notification of the lien to the insurance company. IRC § 6323(b)(9)(C). The notification may take any form but delivery will only be effective from the time the insurer actually receives the notification.

Landlord’s Liens

State law generally gives landlords and lessors a statutory lien for unpaid rents against their tenant’s or lessee’s property located on the leased premises. When a landlord’s lien competes with a federal tax lien for priority, IRC § 6323(a) generally does not apply. Instead, the priority dispute is resolved under the “choateness test.”

In the case of  United States v. Scovil , 348 U.S. 218 (1955), the Supreme Court held that the landlord did not have a choate lien until the landlord recovered a judgment. Prior to obtaining a judgment, the landlord’s lien was inchoate because the amount of the secured debt was not certain, i.e., the secured debt could increase as time progressed and the secured debt could be reduced by the landlord’s breach of contract. To have priority over a federal tax lien, a landlord would have to recover a judgment and then perfect the judgment lien on the personal property prior to the NFTL filing.

Limited Liability Companies (LLCs)

An LLC is a form of business created under state law. LLCs may be either multi-member or single member. Treas. Reg. § 301.7701-3 explains the federal taxation of LLCs. If an LLC is a multi-member, the members may elect to have the LLC taxed as a corporation. If the members do not make the election, then the LLC is treated as a partnership by default. Note, however, that if under state law the members of an LLC are not liable for the debts of the LLC, generally the IRS may not collect the LLC’s federal tax liabilities from the members.  Rev. Rul. 2004-41, 2004-1 C.B. 845. A single-member LLC may also elect to be taxed as an association. If the election is not made, then by default the single member LLC will be disregarded, i.e., the single-member owner is the taxpayer.

Treasury regulations affect the treatment of single-owner disregarded LLCs. See Treas. Reg. § 301.7701-3. The single-owner disregarded LLC is liable for excise taxes as of January 1, 2008; the single-owner disregarded LLC is liable for employment taxes as of January 1, 2009. Treas. Reg. §7701-2(c)(2)(iv) and (v).

Maritime Liens

The Federal Maritime Lien Act provides that any person furnishing repairs, supplies, towage or other necessaries for a vessel shall have a lien upon the vessel for payment. Maritime liens arise under 46 USC § 31342. Although the Internal Revenue Code does not provide a priority for maritime liens, courts have generally given maritime liens priority over the federal tax lien.

Maritime liens have, throughout history, enjoyed a peculiar sort of priority because of the very nature of a ship, its usage and needs, and the needs of its crew. For example, taking on provisions in a foreign port will give rise to a lien against the ship, generally entitled to seniority over any non-maritime lien against the ship, whether arising prior to or subsequent to the maritime lien.

The source of problems in this area is that federal law has created both maritime liens and the federal tax liens. Currently, the courts have generally taken the view that the maritime lien should prevail over both prior and subsequent federal tax liens, regardless of whether the Service has filed a NFTL.  National Bank of North America v. S.S. Oceanic Ondine , 335 F. Supp. 71 (S.D. Tex. 1971),  aff’d , 452 F.2d 1014 (5th Cir.1972);  United States v. Flood , 247 F.2d 209 (1st Cir. 1957).

Mechanics’ Liens

All state statutes provide liens for laborers (mechanics) and material suppliers (materialmen) for work performed or materials supplied with respect to real property. Local law governs the method by which such liens are perfected and their duration. Generally, a mechanic’s lien must be enforced within a certain specified time or it will be lost. Generally, a mechanic’s lien attaches to the real property under construction and the proceeds of the construction contract. In determining lien priority disputes under IRC § 6323(a), one must look to the definition of mechanic’s liens in IRC § 6323(h)(2), which limits the relief provided to persons who have a lien on real property under local law for services, labor, or material furnished in construction of the real property. IRC § 6323(h)(2) also provides that a mechanic’s lien arises on the later of –

• The date on which the mechanic’s lien first becomes valid under local law against subsequent purchasers of the real property without actual notice, or
• The date on which the mechanic’s lienor begins to furnish the services, labor, or materials.

In addition to the above, issues may arise as to whether a payment is the taxpayer’s property. In many cases a subcontractor asserts a mechanic’s lien on construction payments in the main contractor’s possession. A main contractor may fail to pay both his federal tax liability and the subcontractors on a construction project. If the Service and the subcontractors make claims on construction payments, the first step in resolving this priority dispute is determining whether the funds in the general contractor’s possession are the general contractor’s property or rights to property. In many situations the funds will not be the property or rights to property of the general contractor because state law does not give the general contractor any interest in the funds when subcontractors have not been paid.

In two landmark cases, the United States Supreme Court annunciated the now famous “no property” rule.  Aquilino v. United States , 363 U.S. 509 (1960), and  United States v. Durham Lumber Company , 363 U.S. 522 (1960). The “no property” rule means that in approaching any priority determination, the first question must be: “Does the taxpayer have any property to which the lien will attach?” The fundamental thrust of this inquiry is that if there is no property interest to which the federal tax lien attaches, then there is no need to even consider the question of priorities.

In  Aquilino , the Supreme Court remanded the case for a determination of whether the taxpayer-prime contractor, by virtue of a New York statute, held the funds against which the federal tax lien was asserted in trust for the payment of laborers and material suppliers.

In  Durham Lumber Company , the prime contractor-taxpayer, by virtue of the law of North Carolina, was held to have no property interest in funds due from the owner except in any surplus that might remain after the payment of the subcontractors.

Miller Act Cases and Sureties

Subcontractors and suppliers who agree to provide labor and materials to a prime contractor take the risk that they will not be paid by the contractor. To protect these subcontractors and suppliers, Congress enacted the Miller Act, codified at 40 USC §§ 3131-3132 in 1935. Specifically, the Miller Act requires that the prime contractor on all federal construction projects purchase both a  performance  and a  payment bond.

The Miller Act, however, does not set forth the priorities as between any claim of the surety and any government claim. In  United States v. Munsey Trust Co , 332 U.S. 234, 239 (1947), the Court first held that the government, like any creditor, has the right to setoff amounts owed to a debtor against amounts the debtor owes to the government.

The Court also stated that if the surety completed the job, the surety would be entitled to the “retained moneys in addition to progress payments,” as otherwise a surety would rarely agree to complete a job if it knew that, by doing so, it would lose more money than if it had allowed the government to proceed.  Munsey Trust , 332 U.S. at 244.

Subsequently, lower courts have cited  Munsey Trust  to contrast a surety’s payments made pursuant to a payment bond with payments made pursuant to a performance bond. If the surety makes a payment pursuant to a payment bond, then the government has the right to setoff.  Dependable Ins. Co., Inc. v. United States , 846 F.2d 65, 67 (Fed. Cir. 1988);  United States Fid. & Guar. Co. v. United States , 475 F.2d 1377, 1383 (Ct. Cl. 1973);  Barrett v. United States  , 367 F.2d 834 (Ct. Cl. 1966). If a surety makes a payment pursuant to a performance bond, then the government does not have the right to setoff.  See Aetna Cas. & Surety Co. v. United States , 845 F.2d 971, 976 (Fed. Cir. 1988);  Aetna Cas. & Surety Co. v. United States , 435 F.2d 1082 (5th Cir. 1970);  Trinity Universal Ins. Co., v. United States , 382 F.2d 317, 321 (5th Cir. 1967),  cert. denied , 390 U.S. 906 (1968).

A “receiver” is a disinterested third party (similar to a trustee) appointed by a court to receive and preserve property funds in litigation. In general, in determining the priority of the federal tax lien over court appointed receivers, the threshold consideration is determining the nature of the receiver’s interest in the insolvent’s property. Of course, if the taxpayer is divested of title prior to the time the federal tax lien arises, there is no property belonging to the taxpayer in the hands of the receiver to which a federal tax lien will attach.  SEC v. Levine , 881 F.2d 1165 (2d Cir. 1989). If, however, the lien arises prior to the passing of title to the receiver, the property will pass burdened with the lien.

Right of Setoff

Setoff may be defined as the discharge or reduction of one demand by an opposite one. Practically speaking, this question usually arises in the case where a bank has loaned money to a taxpayer who also is the bank’s customer. If the customer/borrower fails to meet the required loan repayments, the bank will often assert a right of setoff against any funds the customer has on deposit.

If the federal tax lien attaches to a taxpayer’s property prior to setoff, then the bank takes funds encumbered with a federal tax lien. The Government may levy on the bank to obtain the encumbered funds.  United States v. Donahue Industries, Inc. , 905 F.2d 1325 (9th Cir. 1990). Alternatively, the Government may file suit under IRC § 7403 to foreclose the tax lien on the property.  United States v. Cache Valley Bank , 866 F.2d 1242 (10th Cir. 1989).

If the bank setoff occurs prior to creation of the assessment lien, then the tax lien will not attach to the funds because the money no longer belongs to the taxpayer.

State and Local Tax Liens

Unlike the property tax, which has a superpriority status under IRC § 6323(b)(6), a state, county, or municipal lien for taxes (e.g., sales taxes, income taxes, franchise taxes, etc.) can achieve priority over the federal tax lien only on the basis that such lien is a choate lien prior in time to the federal tax lien arising, which occurs when the federal tax liability is assessed. Then the doctrine of “first in time, first in right” is applicable.  United States v. City of New Britain , 347 U.S. 81 (1954).

State and local liens may not achieve priority over a federal tax lien by being characterized by the local law as some interest in addition to a lien. Thus, the U.S. Supreme Court rejected the characterization by the New Hampshire Supreme Court of a municipal tax lien as constituting a judgment lien, thus bringing the lienor within the protection of IRC § 6323.  United States v. Gilbert Associates, Inc. , 345 U.S. 361 (1953).

Similarly, a state’s characterization of its lien for taxes as an expense of sale in a mortgage foreclosure action was unavailing and the federal tax lien was held entitled to priority over the subsequent liens of the state on a first in time, first in right basis.  United States v. Buffalo Savings Bank , 371 U.S. 228 (1963). Also, in determining the relative priorities of federal tax liens and state and local liens for taxes, the state’s characterization of its liens as choate is not conclusive for federal tax purposes.  Illinois v. Campbell , 329 U.S. 362 (1946).

The question of what constitutes “perfection” is particularly significant in this area. States vary in terms of how local tax liens are perfected. Generally speaking, state and local tax liens arise either at the time notice and demand is issued (similar to federal tax liens), or after administrative appeal procedures to contest the lien are exhausted. See  Minnesota v. United States , 184 F.3d 725 (8th Cir. 1999) (holding that a state-created lien arises when the state takes administrative steps to fix the taxpayer’s liability);  Monica Fuel, Inc. v. IRS , 56 F.3d 508 (3d Cir. 1995),  cert. denied , 528 U.S. 1075 (2000) (holding state tax liens to be choate when the time period to administratively appeal the lien expires).

In any event, the principal inquiry in these cases is that of “perfection” of the competing state or local tax lien. If there is “nothing more to be done” in order for the state to enforce its tax lien prior to the attachment of the federal tax lien, which occurs when the federal tax liability is assessed, then the state or local tax lien will have priority. However, if the state must still take administrative action to establish a taxpayer’s liability after the federal tax lien arises, then the federal tax lien will have priority. This means that the state/local lien must be “choate” or “perfected” with respect to the property at issue prior to the time the federal tax liability is  assessed .

Subrogation

The doctrine of subrogation involves the substitution of one person in the place of another with respect to a lawful claim or right. IRC § 6323(i)(2) allows creditors to argue subrogation in federal tax lien priority disputes. Specifically, IRC § 6323(i)(2) provides that where, under local law, one person is subrogated to the rights of another with respect to a lien or interest, such person shall be subrogated to such rights for purposes of any lien imposed by IRC § 6321 (relating to lien for taxes) or IRC § 6324 (relating to special liens for estate and gift taxes). In lien priority disputes, subrogation issues arise when a lien that is junior to the federal tax lien pays off a lien that is senior to the federal tax lien.

There is no universal definition of subrogation under state law. Whenever a lienor claims the right of subrogation, state law must be carefully examined to determine if such a claim meets the state definition of subrogation. Consult with Area Counsel on questions regarding applicable state law. State definitions of subrogation may differ. For example, under California law, courts (e.g.,  United States v. Han , 944 F.2d 526 (9th Cir. 1991)) apply a five-factor guideline for determining equitable subrogation:

• Payment was made by the subrogee to protect his own interest.
• The subrogee has not acted as a volunteer.
• The debt paid was one for which the subrogee was not primarily liable.
• The entire debt has been paid.
• Subrogation would not work any injustice to the rights of others.

Note: Subordination is the act or process by which one person’s rights or claims are moved voluntarily to a position ranked below those of other claimants. This differs from the principal of subrogation, in which a creditor moves ahead of another claimant by operation of law.

Uniform Commercial Code (UCC) Security Interest

Many lien priority disputes arise between the lien as secured by the NFTL filing and UCC security interest holders. In order to determine priority, you need to understand the creation and perfection of a security interest under Revised Article 9 of the UCC.

Creation of a security interest — Under state law, attachment is the term used to describe the creation of a security interest in the debtor’s collateral. Under UCC § 9-203, attachment generally requires the following three elements:

• creditor has given value to the debtor,
• the debtor has rights in the collateral, and
• an agreement.

The above three elements may occur in any order. Note, however, that a security interest does not exist under the UCC until all three elements have been met. The definition of a security interest in IRC § 6323(h)(1) includes similar requirements to the above three elements. In short, if a debtor fails the state definition of attachment, the creditor will also fail the IRC § 6323(h)(1) definition of a security interest.

Perfection of a financing statement — Under state law, in order to have priority against other lienors, the security interest not only must attach to the collateral but also must be perfected. UCC § 9-301 and the following sections provide that, depending on the facts and type of collateral, steps for perfection may occur under four different methods:

• filing a financing statement,
• taking possession of the collateral,
• for some types of collateral, particularly bank accounts, exercising control over the collateral,
• in limited situations, usually a purchase money security interest in consumer goods, automatic perfection exists, i.e., attachment of the security interest automatically perfects it. An example is when a store sells a television for personal use, taking a security interest in the television.

A UCC security interest must have attached and must have been perfected in order to have priority over the Service’s later filed NFTL. Do not assume, however, that a creditor’s security interest is perfected just because a financing statement has been filed. The UCC allows a creditor to file a financing statement before the security interest has attached (come into existence), and creditors frequently do so. UCC § 9-308. The Official Comments to UCC § 9-308, number 2, explain that “If the steps for perfection have been taken in advance, as when the secured party files a financing statement before giving value or before the debtor acquires rights in the collateral, then the security interest is perfected when it attaches.”

For corporations, limited liability companies, and other business entities created under state law (registered organizations) do not assume that a UCC security interest is filed at the same location where the NFTL is filed. IRC § 6323(f)(2)(B) states that the location of personal property is the taxpayer’s residence, and the residence of a corporation is the principal executive office of the business. In contrast, a UCC security interest for a debtor-corporation is filed in the state of incorporation. For example, a UCC security interest on the inventory of a corporation with a principal executive office in California, which was incorporated in Delaware, would be filed in Delaware.

Unrecorded Conveyances

Unrecorded conveyances can interact with the federal tax lien at differing points in time. The interaction could be:

• After the accrual of the tax but before the tax is assessed;
• After the tax is assessed and the statutory lien arises, but before a Notice of Federal Tax Lien has been filed; or
• After a Notice of Federal Tax Lien has been filed.

Prior to assessment, a tax lien does not attach to property the taxpayer has conveyed to a third party through a bona fide conveyance which divests the taxpayer’s interest in the property at issue.

Even where state law provides creditors with certain rights to property if there is an unrecorded conveyance, but all of the taxpayer’s interest in the property was conveyed prior to assessment (i.e. the taxpayer retains no post-conveyance interest), the federal tax lien generally will not attach even if the conveyance is recorded after the lien arises.  Filicetti v. United States , 2012-1 USTC ¶ 50,214 (D.Idaho 2012).

In cases involving the determination of priority between a federal tax lien arising after an unrecorded conveyance that extinguishes all of the taxpayer’s interest in the property at issue, generally the federal tax lien does not attach and the lien has no priority position.

The Service’s position on unrecorded conveyances is limited to any bona fide conveyance prior to the assessment and the statutory lien arising that extinguishes all of the taxpayer’s interest in the property at issue. A conveyance is not considered bona fide by the IRS if the taxpayer retains control over the property or enjoys full use and benefit. Thus, the position on unrecorded conveyances does not apply to a transfer to a nominee or alter ego prior to assessment.

Relief from the Federal Tax Lien

The law provides various mechanisms for relief from the federal tax lien.

• The most common types of relief from the federal tax lien are a discharge of property from the effect of the tax lien issued by the Service, a foreclosure by a senior competing lienor, and the Service’s release of the tax lien itself.
• The less common types of relief from the federal tax lien are a certificate of non-attachment, a certificate of erroneous lien, the subordination of the lien, and withdrawal of the NFTL.

The above types of relief are separate and distinct, as discussed below.

Discharge of Property From the Effect of the Tax Lien

A discharge of the property means that the federal tax lien is removed from a particular piece of property. This occurs only in limited situations listed in IRC § 6325(b). A  discharge  of the property should not be confused with a  release  of the federal tax lien. When the Service  releases  the federal tax lien, the underlying tax lien is extinguished on all of the taxpayer’s property.

The Internal Revenue Code provides that the Service may issue a certificate of discharge of property from the federal tax lien if one of the following conditions is met:

• If the fair market value of the taxpayer’s property remaining subject to the lien after the discharge is at least double the sum of the tax liability plus all other encumbrances on that property entitled to priority over the Government’s lien. IRC § 6325(b)(1).
• If the Service receives payment of an amount equal to the value of the Government’s interest in the property. IRC § 6325(b)(2)(A).
• If the Service’s interest in the property has no value. IRC § 6325(b)(2)(B) .

Note:  If there is a short sale, meaning the senior lienholder agrees to accept less than the full amount of its lien, the government’s lien has no value and the Service cannot require payment of a sum that would have been applied to junior real estate taxes as a condition of discharge.

4.  If all or part of the taxpayer’s property is sold, and, pursuant to a written agreement with the Service, the proceeds of such sale are to be held as a fund subject to the liens and claims of the United States, in the same manner and with the same priority that such liens and claims had with respect to the discharged property. IRC § 6325(b)(3). This provision often assists in facilitating the sale of property whenever a dispute exists among competing lienors, including the Government, concerning their respective rights in the property.

5.  Under IRC § 6325(b)(4), the third-party owner of this property (previously owned by the taxpayer, against which the Service has a lien and has filed an NFTL) may obtain a certificate of discharge with respect to the lien on that property. The Service shall issue such a certificate of discharge of property from the federal tax lien if the third-party owner (but, not the taxpayer) either deposits the amount of the Service’s lien interest in the property (as determined by the Service) or posts an acceptable bond for that amount. IRC § 6325(b)(4). The third party then has 120 days to file a court action to determine the value of the Service’s lien interest in the property. IRC § 7426(a)(4). If the Service determines that the taxpayer’s liability can be satisfied by other sources, or the value of the property is less than the deposit or bond, then the Service will refund the deposit (with interest) and/or release the bond. IRC § 6325(b)(4)(B). If a Court determines the value of property is less than the Service’s determination, it will order the same. IRC § 7426(b)(5). If the third party does not institute proper court proceedings within the 120 days after the Service issues the Certificate of Discharge, then the Service has 60 days within which to apply the amount deposited (or collect on the posted bond) to the amount the Service determined was secured by the lien, and refund (with interest) any remainder to the third party. IRC § 6325(b)(4)(C). See also Treas. Reg. § 301.6325-1(b)(4), for further procedures. Note that any person who co-owned the property with the taxpayer can also avail themselves of this remedy.

In all of the above situations, value means either fair market value or forced sale value in appropriate cases and includes the situation where the interest of the Government in the property sought to be discharged has no monetary value, as in the case of property subject to prior encumbrances in a greater amount than the value of the property.

A certificate of discharge is conclusive that the property covered by the certificate is discharged from the lien. IRC § 6325(f)(1)(B). However, if the taxpayer reacquires the property that has been discharged, the tax lien will again attach. IRC § 6325(f)(3).

Foreclosure by Senior Competing Lienor

When a senior lienholder sells a taxpayer’s property to enforce its lien, this “foreclosure sale” may discharge a federal tax lien in certain situations. Such foreclosure sales can be either a judicial sale (i.e., pursuant to a judicial proceeding) or a nonjudicial sale.

Discharge of Tax Lien in Nonjudicial Sale

Most controversies involving the priority of the federal tax lien involve nonjudicial sales, which are sales made pursuant to one of the following:

• An instrument creating a lien on the property sold;
• A confession of judgment on the obligation secured by an instrument creating a lien on the property sold; or
• A statutory lien on the property sold.

Nonjudicial sales include the divestment of a taxpayer’s interest in property by operation of law, by public or private sale, by forfeiture, or by termination under provisions contained in a contract for deed, land sale contract, or conditional sales contract. Treas. Reg. § 301.7425-2(a). The key point is that a court action is not needed to enforce the creditor’s interest and to sell the property.

The first step in analyzing a nonjudicial sale is determining whether the Service filed a NFTL more than 30 days before the sale. If the Service filed more than 30 days before the sale, then notice of the proposed sale must be given to the Service by the foreclosing party in order for the sale to discharge the federal tax lien. If proper notice is not given to the Service, then the federal tax lien will remain on the property. If the Service filed a NFTL less than 30 days before the sale, then the Service is not entitled to notice of the nonjudicial sale, which will generally discharge the property from the federal tax lien. IRC § 7425(b).

If a senior lienor finds a NFTL and wishes to give notice to the Service of a pending nonjudicial sale, the Internal Revenue Code and regulations provide that notice of a nonjudicial sale shall be given in writing by registered or certified mail or by personal service, not less than 25 days prior to the date of sale, to the IRS official, office and address specified in IRS Publication 786, “Instructions for Preparing a Notice of Nonjudicial Sale of Property and Application for Consent to Sale,” or its successor publication. Treas. Reg. § 301.7425-3(a)(1)). The 25-day period is measured from the time of mailing of the notice and applies to the sale of all real and personal property except perishable goods.

When a scheduled sale for which notice has been given is postponed to a later date, the seller of the property must give notice of the postponement to the appropriate Service official in the same manner as is necessary under local law with respect to other secured creditors. Treas. Reg. § 301.7425-3(a)(2).

The date of the sale is significant in order to compute the requisite notice period that the seller has to provide the Service of any anticipated nonjudicial sale of property encumbered by the federal tax lien. Under Treas. Reg. § 301.7425-2(b), the “date of sale” for purposes of notice to the Service arises in one of the following three situations:

• In the case of a public sale which divests junior liens on property, the date of the public sale is controlling.
• In the case of a private sale which divests junior liens on property, the date that title to the property is transferred is controlling.
• In all other cases (i.e., where there is a divestment of title or interest not resulting from a private or public sale), the date of sale is deemed to be the date on which junior liens in the property are divested under local law.

The Service has authority to consent to a sale of property free and clear of the tax lien or title of the United States in a nonjudicial sale which does not meet the standard notice requirements for such sales. If the Service consents in the manner prescribed by the regulations, then the sale will discharge or divest the property from the federal tax lien notwithstanding a defect in the original notice of sale. Treas. Reg. § 301.7425-3(b).

Special rules apply for the notice of sale requirements for perishable goods. These are set forth in Treas. Reg. § 301.7425-3(c).

Discharge of Tax Lien in Judicial Sale

A judicial sale may discharge property from a federal tax lien. 28 USC § 2410(c). Under IRC §7425(a), if the Service files a NFTL prior to commencement of the suit or civil action, the United States must be named as a party in the suit in order to discharge property from the federal tax lien. If the United States is not named as a party, the judicial sale will not discharge property from the federal tax lien. There may be situations in which the United States is not named as a party in the suit because a NFTL has not been filed prior to the filing of the suit, or the filing of a notice of lien is not provided by the IRC, such as in the case of estate or gift tax liens. In these situations, the judicial sale will discharge the federal tax lien as to the property sold.

If either a nonjudicial sale or a judicial sale discharges real property from the federal tax lien, the Service has the right of redemption. This right enables the Service to redeem the real property from the party who purchased it at the foreclosure sale, and then sell it. For both judicial and nonjudicial sales, the Service may redeem the real property within 120 days of the date of sale or the redemption period under state law, whichever is longer. 28 USC § 2410(c) (redemption after judicial sales) and IRC § 7425(d)(1) (redemption after nonjudicial sales).

Release of Lien

There is a fundamental legal distinction between the “release” of a federal tax lien provided for by IRC § 6325(a) and the “discharge” of property from the tax lien provided for by IRC § 6325(b). The release of a lien extinguishes the federal tax lien itself. In other words, a release goes to the very existence of the federal tax lien. In contrast, a discharge will leave only a particular piece of property unencumbered by the federal tax lien.

Before the Service can issue a certificate of release, certain specified conditions must be met. IRC § 6325(a); Treas. Reg. § 301.6325-1. A certificate of release of the federal tax lien is authorized under each of the following conditions:

• The amount assessed (plus interest) is paid.
• The amount assessed becomes legally unenforceable.
• A bond is furnished that is satisfactory in terms and sufficient in amount to secure the payment of the outstanding assessments plus interest.

If either of the first two conditions is met and a Notice of Federal Tax Lien has been filed, a certificate of release must be issued by the IRS.  Pursuant to the regulations, a tax lien must be released as soon as practicable, but not later than 30 days, after the IRS Area Director has:

• determined that the liability has been fully satisfied,
• determined that the liability has become legally unenforceable, or
• agreed to accept a bond for the release.

All NFTLs filed since December 1982 contain a self-releasing clause stating that the federal tax lien will automatically be released unless the NFTL is timely refiled. Also, the Service may file a certificate of release prior to the time a NFTL will self-release. In both situations, the release is conclusive that the tax lien referred to in the certificate is extinguished. IRC § 6325(f)(1)(A). To prevent the lien from self-releasing, the Service must refile the NFTL in every office in which a NFTL was originally filed.

If the underlying tax liability has not been satisfied or is not legally unenforceable, the taxpayer is not entitled to release of the lien. See IRC §§ 6322, 6325(a).

The effect of a release is extinguishment of the underlying statutory assessment lien. IRC § 6325(f). The release, in itself, does not extinguish the underlying liability. For example, if a release occurs due to acceptance of a bond or expiration of the collection statute, the liability remains while the assessment lien is extinguished.

Certificate of Nonattachment

The Service may issue a certificate of nonattachment of the federal tax lien if it determines that a person (other than the taxpayer) may be injured by the appearance of the Service’s NFTL. IRC § 6325(e). This situation typically arises when the name of the taxpayer is similar (or identical) to that of a taxpayer identified on a NFTL. The Service files this certificate in the same office where the Service filed the NFTL. It is conclusive that the lien of the Government does not attach to the property of the person referred to in the certificate. The Service may also revoke the certificate in the same manner as a certificate of release of lien. IRC § 6325(f)(2).

The certificate of nonattachment is not related to the discharge of property or the release of a federal tax lien. The certificate of nonattachment is used only when, as a matter of fact and law, the federal tax lien never attached to the property involved because the taxpayer did not own it. The owner of certain property may be subjected to unnecessary hardship because of a lien against a taxpayer with a similar name, thus, perhaps, constituting a cloud on the former’s title to his/her property.

Erroneously Filed NFTL

Treas. Reg. sec. 301.6326-1(b) defines an erroneously filed NFTL as one which is filed during the presence of one of the following conditions:

• The tax liability was satisfied prior to the NFTL filing,
• The tax liability was assessed in violation of deficiency procedures in IRC sec. 6213,
• The tax liability was assessed in violation of the Bankruptcy Code, or
• The statute of limitations for collection expired prior to the filing of the NFTL.

In situations where it has been determined that a NFTL was erroneously filed, a specially-worded Form 668(Z), Certificate of Release of Federal Tax Lien, and Letter 544,  Letter of Apology – Erroneous Filing of Notice of Federal Tax Lien , will be issued. Pursuant to IRC sec. 6326, the release and letter should be issued within 14 days of the determination, when practical.

Subordination of the Tax Lien

Subordination is the act or process by which one person’s rights or claims are moved voluntarily to a position ranked below those of other claimants. This differs from the principle of subrogation, in which a creditor moves ahead of another claimant by operation of law. Under IRC § 6325(d), the Service may issue certificates subordinating a tax lien to another interest if:

• payment is received in an amount equal to the amount with respect to which the tax lien is subordinated , or
• the Service believes that the subordination of the tax lien to another interest will ultimately result in an increase in the amount realized by the United States from the property subject to the lien and will aid in the collection of the tax liability.

Subordination provides the Service with flexibility. In subordination by payment, the tax lien is being subordinated only to the extent the United States receives, on a dollar-for-dollar basis, an equivalent amount. The Government’s interest cannot be injured and a new procedure for collecting taxes is made available.

In subordination to ultimately aid in the collection of the tax, there is a risk that the subordination will decrease collection. For example, the federal tax lien could be subordinated to a mortgage that would provide funds to repair a dilapidated building. The assumption is that the real estate market will not go down and that the increased value of the building would both satisfy the mortgage and increase the overall payment of the tax liability. The assumption may be incorrect; the real estate market may go down. After the mortgage is paid, the Service may receive less revenue because of its decision to subordinate.

The Service must exercise good judgment in weighing the risks and deciding whether to subordinate the federal tax lien. The Service’s judgment is similar to the decision that an ordinarily prudent business person would make in deciding whether to subordinate his/her rights in a debtor’s property in order to secure additional long run benefits.

Withdrawal of Notice of Federal Tax Lien

There is an important distinction between “releasing” a federal tax lien and “withdrawing” a filed notice of that lien. The release of a federal tax lien extinguishes the underlying statutory assessment lien. IRC § 6325(f). Not all releases occur after the liability has been satisfied. For example, unless an NFTL is timely refiled, the federal tax lien will self-release because all NFTLs filed since December 1982 contain a self-release clause.  The release does not, in itself, extinguish the underlying liability.

The Service has authority to “withdraw” a notice of federal tax lien, in certain circumstances. IRC § 6323(j)(1). The withdrawal of the NFTL only withdraws public notice of the lien; it does not extinguish the underlying liability, nor does it release the underlying federal tax lien.

The Service may withdraw a notice of federal tax lien if the appropriate official determines that one of the following four conditions is met:

• The Service’s filing of the NFTL was premature or otherwise not in accordance with administrative procedures.
• The taxpayer has entered into an installment agreement to satisfy the tax liability, unless the agreement provides otherwise.
• The withdrawal of the NFTL will facilitate collection of the tax liability underlying the NFTL.
• The withdrawal of the NFTL would be in the best interest of the taxpayer, as determined by the National Taxpayer Advocate (NTA), and in the best interest of the United States, as determined by the appropriate official.

Note: The Service needs the consent of the taxpayer or the NTA to withdraw a notice of federal tax lien as in the best interests of the United States. A withdrawal for one of the other reasons does not require consent. IRC § 6323(j)(1).

The Service must file its notice of withdrawal of the NFTL at the same office as the withdrawn notice, and must provide a copy of the withdrawal to the taxpayer. Treas. Reg. 301.6323(j)-1. In addition, if requested in writing by the taxpayer, the Service must make reasonable efforts to give notice of withdrawal of the NFTL to creditors, credit reporting agencies, and financial institutions specified by the taxpayer. IRC § 6323(j)(2).

Withdrawal of Notice of Federal Tax Lien after Lien Release

IRC 6323(j) is primarily for situations in which the federal tax lien is still in effect; however, the Service is not legally prohibited from withdrawing the lien’s notice (NFTL) after the lien has been released pursuant to IRC 6325(a). The IRS does not have general authority to withdraw a NFTL outside of the conditions of IRC 6323(j) but whether or not to grant a post-release withdrawal becomes a matter of policy.

Written requests submitted under IRC § 6323(j)(1)(A) (the Service’s filing of the NFTL was premature or otherwise not in accordance with administrative procedures) will generally be granted after lien release if the taxpayer demonstrates the original NFTL filing was improper or not otherwise in accordance with IRS procedures. A withdrawal under this provision may be issued whether a certificate of release was issued or the lien self-released.

Post-release NFTL withdrawals under IRC 6323(j)(1)(D) (best interest test) will generally be granted if the following conditions apply:

• The taxpayer requests the withdrawal in writing, and
• The taxpayer fully satisfied the liabilities on the NFTL.
• The taxpayer is in compliance with filing requirements.

The taxpayer will be considered to be in compliance if the return was, or can be, closed for one of the following reasons:

Liens that self-released in error when the releases are subject to revocation do not qualify for withdrawal under these procedures.

Withdrawal of Notice of Federal Tax Lien When Direct Debit Installment Agreement (DDIA) is in Effect

A request for lien withdrawal under IRC § 6323(j)(1)(B), related to an active DDIA, will generally be approved for certain types of taxpayers if the following conditions are met:

• Aggregate unpaid balances of assessment and pre-assessed taxes are $25,000 or less.
• Liability will be full paid in 60 months, or prior to collection statute expiration, whichever comes first.
• The withdrawal request is in writing.
• The taxpayer is in compliance with all other filing and payment requirements.
• At least three consecutive payments have been made and there have been no defaults in payment.
• The taxpayer has no previous lien withdrawals, excluding withdrawals relating to improper NFTL filing.
• If a taxpayer defaults on making payment after the NFTL is withdrawn, a new NFTL may be filed if appropriate.

Note:  If a taxpayer does not meet these criteria for withdrawal, the Service must still consider the withdrawal request under the general rule allowing for withdrawal if the taxpayer enters into an installment agreement set forth at IRC 6323(j)(1)(B).

Revocation of Release of Lien and Nonattachment of Lien

If the Service made an error in releasing the federal tax lien or filing a nonattachment of tax lien, that error may be corrected if the collection period is still open. A lien may be found to have been released erroneously or improvidently when the lien self-releases because it was not timely refiled or not timely refiled in all locations where the original NFTL was filed, the Service erroneously files a certificate of release, or when an offer in compromise has been breached. The Service may correct such errors by revoking the certificate of release or nonattachment. IRC § 6325(f)(2).

Because a released lien or a lien released pursuant to self-release language in an NFTL releases the underlying statutory lien, a release in one location invalidates any notice of that statutory lien (NFTL) filed elsewhere. There is only one statutory lien but there can be multiple notices filed for that one statutory lien. The revocation reinstates the statutory lien.

The Service effects the revocation by mailing a notice of the revocation to the taxpayer’s last known address and by filing notice of the revocation in the same office(s) in which the notice of lien to which it relates was filed. If NFTLs or refiled NFTLs were filed in multiple offices, the notices of revocation must also be filed in each of those offices. Any release not cancelled by a revocation filing remains a release of the statutory lien and continues to invalidate any lien notice (NFTL) filed elsewhere.

The effective date of reinstatement will be the date by which the Service has both mailed the notice of revocation to the taxpayer and properly filed the notice of revocation. Revocation does not restore the continuity of the original tax lien from the date of assessment, and there is a gap period between the original release and the revocation of that release within which other liens may arise. Other liens arising during the gap period may have priority over the “reinstated” federal tax lien.

The reinstated lien will have the same force and effect as a general tax lien which arises upon assessment of the tax. IRC § 6321. The reinstated lien will not be in existence for a period longer than the period of limitation on collection after assessment of the tax liability to which it relates. The reinstated lien will not be valid against any holder of a lien or interest described in IRC § 6323(a) that perfected their lien or interest prior to the filing of the reinstated lien.  Treas. Reg. § 301.6325-1(f)(2)(iii)(b). The Service must file a new NFTL pursuant to IRC § 6323(a) in every office where it wishes to establish priority.

If the Service seeks to issue a notice of revocation of the certificate of release during a taxpayer’s bankruptcy, it should seek relief from the automatic stay of Bankruptcy Code § 362 to avoid the question of whether the revocation of a certificate of release constitutes a prohibited creation of a new lien interest while the debtor is subject to the automatic stay.

Special Tax Liens Applicable to Estates and Gifts

The Internal Revenue Code provides for a special estate tax lien and a gift tax lien, both of which are separate and independent of the general tax lien. IRC § 6324. The estate tax lien and the gift tax lien may exist simultaneously with the general lien provided for by IRC § 6321 or they may exist independently of the general lien under IRC § 6321. The estate and gift tax liens arise automatically, unlike the general tax lien.

The Estate Tax Lien

When an individual dies, the estate tax lien automatically arises upon death for the estate tax liability. The Government does not have to take any action to create the estate tax lien. This means that the estate tax lien is in existence before the amount of the tax liability it secures is even ascertained.  Detroit Bank v. United States , 317 U.S. 329 (1943).

The estate tax lien is a function of the amount of the estate tax a decedent’s estate ultimately owes. The lien attaches to the decedent’s entire “gross estate,” exclusive of property used to pay charges against the estate and administration expenses, for a period of ten years from the date of the decedent’s death. IRC § 6324(a)(1). The majority of courts have held that the ten-year estate tax lien is of absolute duration and thus, lien foreclosure must be completed before expiration of ten years.  SeeUnited States v. Davis , 52 F.3d 781 (8th Cir. 1995);  United States v. Cleavenger , 517 F.2d 230 (7th Cir. 1975). The Service follows this majority rule. On the other hand, an administrative levy is completed once the notice of levy is served or in the case of tangible property, when the notice of seizure is given. Thus, any suit outside the ten-year period to enforce a levy would not be barred.

The estate tax lien attaches to the “gross estate” of the decedent. The gross estate, arising under federal law, includes certain types of property not included in the probate estate. For example, property held by trusts established by the decedent many years before death may be includible in the gross estate by reason of the trust instrument reserving to the decedent certain “powers,” such as the power to revoke the trust, change beneficiaries, etc.

Under IRC § 6324(a)(2), special rules exist for property included in the “gross estate” but not passing through probate. For nonprobate property, if the estate tax is not paid when due, then the spouse, transferee, trustee, surviving tenant, person in possession, or beneficiary of the estate is generally liable for the payment of the estate tax to the extent of the value of the estate’s property held by, or passing to, such person. IRC § 6324(a)(2). This means that the estate tax lien will encumber such property in the hands of persons within the above classes without regard to any filing of notice of lien or the need for a separate assessment of tax.

If a spouse, transferee, trustee, surviving tenant, person in possession, or beneficiary of the estate transfers nonprobate property to a purchaser or holder of a security interest, then that property is divested from the estate tax lien. IRC § 6324(a)(2). The Service, however, may still collect from the spouse, transferee, trustee, surviving tenant, person in possession, or beneficiary of the estate. IRC § 6324(a)(2) provides that if a transfer of nonprobate property to a purchaser or holder of a security interest removes the estate tax lien, then a “like lien” shall attach to the transferor’s property.

The statute of limitations applicable to the personal liability established by IRC § 6324(a)(2) is not the 10-year period from the date of death set forth in IRC § 6324(a)(1); rather it is 10 years from the date the assessment is made against the estate upon the filing of the estate tax return, in accordance with IRC § 6502(a). The section 6324(a)(2) personal liability arises independently of the estate tax lien; accordingly, it may be collected within the ordinary collection period of 10 years from the date of assessment. A separate assessment against the transferees is not required.  SeeEstate of Mangiardi v. Commissioner , T.C.M. 2011-24 aff’d, 442 Fed. Appx. 526 (11th Cir., October 12, 2011);  United States v. Bevan , 2008 WL 5179099 (E.D. Cal. 2008);  United States v. Degroft , 539 F.Supp.42 (D.Md. 1981).

If property is included in the estate under IRC § 2033 (probate assets), it is divested of the lien upon transfer to a purchaser or holder of a security interest only if the estate’s executor has been discharged from personal liability under IRC § 2204. See IRC § 6324(a)(3);  United States v. Vohland , 675 F.2d 1071, 1075 (9th Cir. 1982);  United States v. Estate of Young , 592 F.Supp. 1478, 1486 (E.D. Pa. 1984). See  also  Rev. Rul. 69-23, 1969-1 C.B. 302

As with the general tax lien, there are some exceptions to the special lien for estate taxes. IRC § 6324(c). Thus, the estate tax lien will not be valid as against a mechanic’s lienor and against the superpriorities listed under IRC § 6323(b) if the conditions set forth in that section are satisfied. In addition, if a lien or security interest has priority over the estate tax lien, interest and allowable expenses based on the lien or security interest will have priority based on state or local law. Thus, for example, if A has a valid mortgage on B’s real property, A’s priority over the special lien will include not only the amount of the mortgage debt owed but also the amount of interest and allowable expenses.

IRC § 6324A creates a special lien for estate taxes deferred under IRC § 6166. The executor of the estate makes an election under IRC § 6166 to defer payment of the estate tax for a period of up to 14 years. This period can be extended if the estate requests an extension to make a payment under the deferral election pursuant to IRC § 6161(a)(2)(B). If an estate qualifies and elects to defer the payment of estate tax pursuant to IRC § 6166, the Service must evaluate whether a bond should be required as security for deferral or whether it will require any security at all based on the facts and circumstances of each case.  See  IRC § 6165;  Estate of Roski v. Commissioner , 128 T.C. 113 (2007); IRM 5.5.5.5. The Service’s decision to require a bond can be appealed to the Tax Court.  See  IRC § 7479(a).  See  Notice 2007-90, 2007-46 I.R.B. 1003 regarding the factors the Service will consider in deciding to require security. If the Service does require security, the estate may elect to provide an IRC § 6324A special lien in lieu of the bond.

IRC § 6324B creates a special lien for the pending additional estate tax attributable to the estate’s election to use a “special use value” for certain “qualified” property for estate tax calculations. See IRC § 2032A (valuation of farm real property and certain real property used in family business).

The Gift Tax Lien

Under IRC §6324(b), the gift tax lien comes into existence upon the making of a gift by a donor, if the donor is, in fact, liable for a tax in respect to such gift, or any other in the same taxable year. The gift tax lien, like the estate tax lien, arises automatically, and requires no action by the Service. Unless the donor files a gift tax return, there is no statute of limitations on the gift and the Service may examine the gift at any time.

The gift tax lien attaches only to the property which is the subject of the gift. It does not attach to any of the donor’s property. It may attach to the other property of the recipient of the gift in a manner similar to the way an estate tax lien may attach to other property of a decedent’s distributees or transferees. See  IRM 5.17.2.9.1 . This is because the recipient is made personally liable for any gift tax incurred by the donor on a gift, made during the calendar year, to the extent of the value of the property received if the tax is not paid when due.

A separate assessment against the donee is not required to make the gift tax lien enforceable against the donee’s property. Any part of the property which was the subject of the gift that is transferred by the recipient to a purchaser or holder of a security interest will be divested of the lien and, to the extent of the value of such transfer, the lien will attach to the property of the donee, including after-acquired property.

As was pointed out above, property that comprises the gift or a portion of the gift in issue, which is transferred by the recipient to a purchaser or holder of a security interest is divested of the lien. Likewise the recipient’s own property to which the lien shifts, as explained above, is in turn divested of the lien if it is transferred to a purchaser or holder of a security interest. The exceptions for superpriorities applicable to estate tax liens also apply to gift tax liens.

Note.  The following provision govern tax liens:

• The following Policy Statements and Delegation Orders regulate NFTL filing.

[1] Note that the IRS only secures extensions on partial payment installment agreements and only in limited situations.

Representation in Tax Audits & Appeals  

Need assistance in managing the audit process ? Freeman Law’s team of attorneys and dual-credentialed attorney-CPAs regularly represents taxpayers before the IRS and Texas Comptroller. Our team also provides tax return-related representations and helps taxpayers navigate state tax laws. Our Firm offers value-driven services and provides practical solutions to complex issues. Schedule a consultation or call (214) 984-3000 to discuss our tax representation services.  

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Maricopa County Treasurer’s Office

John m. allen, treasurer.

Maricopa County Treasurer's Office

• Alerts & Announcements
• Bulk Payments
• Regarding Tax Liens
• Regarding Your Property Tax
• Glossary of Terms
• Tax Lien Statistics

Tax Lien Tutorial

• Tax Sale Details
• Forgot My Password
• Forgot My UserName
• Register For ParcelWatch
• Annual Reports
• Qasimyar vs. Maricopa County
• Assistance Programs
• Liens & Research
• Parcels With Overdue Taxes
• Payment Options
• Research Request
• Understanding Your Tax Bill
• Parcel Inquiry
• Meet Your Treasurer
• Treasurers - 1871 to Present

Introduction

Pre-sale requirements, proxy bid procedure, bid interest, redemption of liens.

• Re-assignment Purchasing

Purchasing Delinquent Taxes for Subsequent Years

• Transfer of Certificates of Purchase

Monthly Activity Statement and Outstanding Portfolio Report

The Tax Lien Sale provides for the payment of delinquent property taxes by an investor. The tax on the property is auctioned in open competitive bidding based on the least percent of interest to be received by the investor.

Property taxes that are delinquent at the end of December are added to any previously uncollected taxes on a parcel for the Tax Lien Sale. The sale takes place online in early February of each year. Please read the disclaimer before deciding to bid, and see our lien FAQ page and lien history page.

Parcels whose taxes are subject to sale will be advertised, in January, in a Maricopa County newspaper of general circulation.

• in the Arizona Business Gazette, Copies of the newspaper are usually available for purchase at the Treasurer's Office.
• posted on the Tax Sale website https://maricopa.arizonataxsale.com
• in the Treasurer's Office (on the lobby computers) at 301 W. Jefferson, Suite 100, Phoenix, AZ 85003.
• a CD called the “Tax Sale Advertising List” for $25.00 can be purchased: ResearchMaterial.pdf

The investor is responsible for all research on the parcels available for auction. County maps for research may be found by visiting the Maricopa County Assessor's website. Read our Recommendations to all bidders.

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To be eligible to bid, investors must provide the Treasurer's Office with a completed:

• CP Bidder application
• AND IRS Form W-9 , IRS Form W-8BEN (for Foreign Individuals), or IRS Form W-8BEN-E (for Foreign Entities).

Please mail completed forms to Maricopa County Treasurer, 301 W Jefferson St #140, Phoenix, AZ 85003, or fax to (602) 506-1102.

A number will be assigned to each bidder for use when purchasing tax liens through the Treasurer’s office and the online Tax Lien Sale.

Registration is processed through the Treasurer’s Office, except during the time the Tax Sale website is available to the public (from mid-January through mid-February). Then, during the Tax Sale, registration will be processed through https://maricopa.arizonataxsale.com .

Proxy bidding is a form of competitive sale in which bidders enter the minimum interest rate that they are willing to accept for each certificate. The auction system acts as an electronic agent, submitting bids on behalf of each bidder. The result of the proxy system is that the electronic agent keeps lowering the bid to submit by one percent increments until you are either the only bidder left, (in which case you get the certificate at one percent lower than the previous bid) or until you reach the floor you have set.

• Zero percent bids will not be treated as proxy bids. They will be awarded at zero.
• If you are the only bidder on a given certificate and your minimum rate is greater than zero percent, the electronic agent will submit a bid of 16% on your behalf.
• In the case of a tie at the winning bid rate, the system awards to one of the tie bidders through a random selection process using a random number generator.
• In no case will a bidder be awarded a certificate at a rate lower than his specified minimum acceptable rate.
• Certificates that receive no bids will be "struck to the state" at 16%.

The successful bidder will pay the entire amount of taxes, interest, and fees via ACH debit by the end of the next business day. Fees include a non-refundable/non-interest earning Tax Payer Information Fee of $5.00/10.00 as per ARS 42-18122B. If payment has not been made, the parcel(s) will be struck to the State of Arizona.

Each investor will receive an Outstanding Portfolio Report identifying each parcel for which the investor had acquired a tax lien.

When making an inquiry on a property, use the parcel number located in the left column of the Portfolio.

Bids are for the percent of interest income to bidder.

The maximum bid is 16% simple interest per annum, prorated monthly. The lowest acceptable bid is 0% per annum.

The successful (lowest) bid will determine the rate of interest to be paid on the Tax Lien, representing the amount of taxes, interest, fees and charges then due. Also read Proxy bidding in this Tax Lien Tutorial

If the owner and/or agent redeems the property tax lien, the investor receives a payment of what they paid for the lien, less the processing fee, plus the prorated monthly rate of interest that was awarded at the sale.

The lien bears interest at the bid rate from the first day of the month following the purchase of the tax lien.

When a property owner fails to redeem the CP prior to the expiration of three years from the date the parcel was first offered at sale, the investor may apply for a court ordered deed to the property (judicial foreclosure).

As of December 31, 2003, the Treasurer's Office does not issue Treasurer's deeds on buyer purchased CPs. All buyer foreclosures are judicial.

Re-Assignment Purchasing aka Transfer of Ownership of a CP

If not redeemed, a CP may be transferred by affidavit to another person who is a registered CP buyer with the Maricopa County Treasurer's office.

We do have a pre-made form for the reassignment of a Certificate of Purchase, or the current lien holder may create one of their own. The affidavit should include the:

There is a $10.00 transfer fee for each CP#. The out of office negotiations are agreements solely between the current and new lien holders. The Treasurer's Office simply processes the reassignments.

It usually takes a few days to complete the reassignment process, you are welcome to mail or walk in your reassignment request. We will notify you by email when it is complete.

If the lien is redeemed during the transition period, the Treasurer pays the redeemed taxes to the last CP holder on record. The $10 fee would be refunded to whichever lien holder paid the fee.

The Treasurer's Office must be notified of the transfer with an original affidavit for it to be valid.

Any party holding a Certificate of Purchase (CP) on a delinquent tax lien for a prior tax year may purchase the delinquent tax for a subsequent year.

A subsequent year’s tax (sub-tax) can be added to an existing CP beginning on June 1 and ending on January 14 . Subsequent year liens not sub-taxed will go to the next tax lien auction in February. The interest earned on a sub-tax is the same as that of the original CP.

The person wishing to sub-tax is responsible for determining the amount due for the fixed amounts of taxes and fees, and the interest accrued based upon the date of the sub-tax purchase. Interest is on the total tax amount and accrues on the first day of each subsequent month. The fee for each sub-tax is $5.00.

There are two ways to sub-tax:

• In the Treasurer’s office using computer terminals located in our lobby. Instructions and assistance are available.
• Send a list of desired purchases and payment to:    Maricopa County Treasurer    Attention: Tax Lien Department    301 W. Jefferson Street, Suite 140    Phoenix, AZ 85003-2199

Please use the format below when submitting a purchase request.

Maricopa County Treasurer’s Office recommends using EXCEL or one of the other spreadsheet programs when using OPTION 2. This will increase the accuracy and timeliness of processing your request.

The amount due is on our website at: http://treasurer.maricopa.gov . To retrieve the “Tax Summary” page for a parcel, you can click here and enter a "Parcel #" , or you can go to our Homepage and enter a "Parcel #" in the "Taxpayer" panel. From June through August, if there is a dollar amount printed in red in the upper right column, there is a delinquency eligible for sub-taxing. After August, the new tax year amounts are added to our website. You will now need to look for the "unpaid tax" line for the prior tax year to determine the amount to sub-tax. A redemption statement is another source used to determine sub-tax purchase amounts. That amount, plus the $5.00 fee, is the total amount necessary to sub-tax. Personal and business checks are accepted.

An Activity Statement will be created for each CP buyer, listing their redemptions, purchases, surrenders, expirations, and extinguishments. Only those accounts with activity in the last month will have a report available on the Tax Lien Web site. Outstanding Portfolio Reports will also be available for active buyers The Tax Lien Web is updated the first week of each month. These statements can be viewed on the Maricopa County Treasurer's Tax Lien Web site. To have access to this information you must first register.

Seniors needing additional property tax relief and Arizonans not required to file individual income taxes may be able to take advantage of state tax credits

Individual income tax filing season in the state provides potential benefits for Arizonans whose income level is below minimum threshold limits and not required to file an individual income tax return or are seniors who own a residence.

Both may still be eligible for state tax benefits by submitting two forms available through the Arizona Department of Revenue - Form 140ET Credit for Increased Excise Taxes or Form 140PTC Property Tax Refund Claim.

• Form 140PTC is used by qualified individuals to claim a refundable income tax credit for taxes paid on property located in Arizona that is either owned by or rented by the taxpayer. Form 140PTC provides a tax credit of up to $502. To claim a property tax credit, you must file your claim or extension request by April 15, 2020. You cannot claim this credit on an amended return if you file it after the due date.
• Form 140ET is used by individuals not required to file an Arizona individual income tax return but qualify to claim the refundable excise tax credit. The maximum credit available for the increased excise tax (Form 140ET) is $100 per household. An excise tax is a tax levied on certain goods by the state or federal government such as fuel, cigarettes, cellphones and alcoholic beverages.

Individuals not filing an income tax return and claiming both credits need only to complete Form 140PTC. However, individuals not submitting a tax return and not claiming the property tax credit must complete Form 140ET to claim the credit for increased excise taxes.

To determine eligibility for either Form 140PTC or Form 140ET, see form instructions at www.azdor.gov/Forms/Individual .

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CP Expirations Legal Changes

There has been a change in CP Liens that is applicable to lienholders. Beginning September, 2019, SB1236 will include a provision that modifies the language in §A.R.S. 42-18127 Section A.

The original certificate of purchase, in addition to all subsequent taxes (sub taxes) will expire if an action to foreclose has not commenced within ten years after the last day of the month in which the original certificate was acquired.

Pursuant to this legislation, tax liens eligible for expiration will include the original certificate and all related sub taxes in the expiration process. Those liens with deadlines that are already in effect will not be affected however it will affect all future sub taxing liens so that the deadline will expire within a ten year period after the last day of the month that it was acquired and time limits cannot be extended to the original purchase.

You should consult your attorney for further advice.

Elderly Assistance Program

We have been receiving many phone calls from seniors expressing shock and dismay at the significant increase in their property tax bills. It is tragic. Treasurer Royce T. Flora has been trying for five years to get the legislature to reclassify low-income seniors’ homes in order to lower their ever-increasing property taxes. Several different players have defeated these efforts each year, which has led to a doubling of many folks’ property taxes this year. Treasurer Flora is not giving up. Please click on this LINK to read a letter to legislators explaining the Treasurer’s disappointment in their failure to help our needy seniors. With the enthusiastic help of Representatives Bob Thorpe (R-Flagstaff) and Anthony Kern (R-Phoenix), Treasurer Flora will again champion the effort to get a bill passed by legislators and signed by the governor in 2020.

Beware of Alternate Tax Payment Websites!

Please be aware of other property tax payment websites which could mislead you to believe they are the Maricopa County Treasurer’s website. Although you can make payments through them, they are not our official agent and will charge you processing fees. We have no control over payments made through them.

County Treasurer Forced To File Bar Complaint Against Appointed County Attorney Adel

Phoenix, AZ - The elected Maricopa County Treasurer Royce Flora is considering a lawsuit against the Board of Supervisors for interfering with his Constitutional duty to run his Office. He has asked for outside counsel so he can have the opportunity to speak candidly with competent council on the issues, and as he recognizes the clear conflict interest with the County Attorney. The County Attorney is counsel to the Board and as such Treasurer Flora cannot engage in direct conversation with the County Attorney and violate attorney/client privilege. The County Attorney is the legal attorney for the County Treasurer normally, but because the County Attorney is legal counsel to the BOS, she cannot represent Treasurer Flora.

The Office of Treasurer is not subordinate to a county governing Board of Supervisors. The Office of Treasurer is a statutory/constitutional office having independent authority under state law and state constitution.

The use of the term "Office" implies inherent powers and independent sovereignty, NOT another "department" of county government.

The internal operation of an Office of Treasurer is the sole responsibility of the elected Treasurer.

Aware of the conflict, Treasurer Flora initially sent a request for outside counsel to the county attorney assigned to the Treasurer’s office. Then he sent his request directly to County Attorney Allister Adel. He didn’t receive a response from Ms. Adel. However, he did eventually receive a response from Tom Liddy, Civil Division Chief of the County Attorney’s Office. “Clearly Ms. Adel does not feel an elected officer to elected officer response is warranted. This also adds to the inherent conflict in her office,” Mr. Flora stated. He adds, “The conflict is further exacerbated by the fact that Ms. Adel was appointed by the Board, so she likely has allegiance to the Board and is conflicted as a result.”

Maricopa County Treasurer Willing to Loan $1 Billion to State for Coronavirus Crisis

Phoenix, AZ (July 21, 2020) - Maricopa County Treasurer, Royce T. Flora announced today that his office is willing to loan the State of Arizona $1 billion dollars to fight the economic damage from the Coronavirus outbreak in Arizona.

"The State of Arizona is a COVID-19 hotspot. We are experiencing significant damage to local businesses. Arizona’s Health Care industry needs additional resources for testing and personal protective equipment and Maricopa County is in a position to help the State financially to combat this virus," said Royce T. Flora, Maricopa County Treasurer. "We can loan one billion dollars to the State from our portfolio to fight COVID-19 and the loan will have little effect on County taxpayers," he added.

The funds would come from Maricopa County’s investment portfolio which as of last month, had an annual high balance of $6.7 billion. The Maricopa County Treasurer's Office invests funds in short-term investment opportunities to generate revenue that is dispersed back into our economy. With interest rates near zero, this money is in our accounts and needs to be put into production.

To arrange an interview with Maricopa County Treasurer, Royce Flora, contact us at (602) 506-8511

Tax Deadline Update

I’m extremely disappointed to report despite all our efforts to request to extend the delinquency date to pay 2019 property taxes, no action has taken place. Senate President Karen Fann expressed support at first, and although many legislators have enthusiastically voiced their support, there doesn’t appear to be any progress. There has been no response from House Speaker Rusty Bowers or from Governor Doug Ducey.

I will continue to fight to get relief for homeowners including an extension and/or waiver. However, if the Legislature and the Governor do not extend the deadline and if you are unable to pay the balance of 2019 property taxes by May 1st at 5:00pm, here is a suggestion for you to make your own one-month extension: If you pay late, you will incur an interest penalty. We suggest you pay on the last business day of the month, because whether you pay May 2nd or May 29th, the interest amount is the same.

Regrettably, there is no other relief County Treasurers can provide for homeowners; I am restricted by law. Only the Legislature can change the law and that seems unlikely.

Additionally, after consultation with the County Attorney’s Office, I have determined there is a legal way to provide some relief to some taxpayers. ARS 42-18056 G gives County Treasurers the authority to “enter into a payment plan agreement” with business personal property taxpayers who become delinquent on their taxes of more than $1000. Those qualifying businesses will receive a letter explaining what action to take.

I wish you all well and please stay safe.

With great respect, Royce T. Flora Maricopa County Treasurer

Senate President Karen Fann 602-926-5874 Speaker of the House Rusty Bowers 602-926-3128 Governor Doug Ducey 602-542-4331 Maricopa County Treasurer’s Office 602-506-8511

Maricopa County Treasurer Royce Flora Continues His Commitment to Extend Property Tax Payment Deadline

Treasurer Royce Flora continues his commitment and push for the Legislature to extend the delinquent date to pay 2019 property taxes and to waive all penalties and interest. Treasurer Flora has sent formal requests to the Legislature and the Governor to call a Special Session to address the extension and the waiver. Unfortunately, as of this date, the Legislature still has not acted and the Governor has yet to respond.

Many legislators, including Senate President Karen Fann, have voiced support to get this done. But still no real action; more need to step up and do it.

“This is really a simple fix that will help relieve some financial stress that so many of our citizens are feeling at this time of crisis, trying to provide for their families and put food on the table or pay taxes,” Treasurer Flora says. “There is still time for the Legislature to do this, but time is running out.”

As stated in the April 6th letter to the Governor, the “extension will in no way negatively impact any of the scheduled disbursements to school districts, fire districts, or any special districts. All 15 County Treasurers (have joined Treasurer Royce Flora and) agree that the disbursements will proceed as planned. But all 15 also agree that this extension will give (critically needed) relief to many homeowners who are being negatively impacted by this pandemic.”

As a citizen/taxpayer you can also have influence in this issue. Please contact your legislator and/or the Governor and voice your opinion. Make your voice heard.

Senate President Karen Fann 602-926-5874 Speaker of the House Rusty Bowers 602-926-3128 Governor Doug Ducey 602-542-4331

Maricopa County Treasurer Royce Flora Asks the Governor to Extend Property Tax Payment Deadline

April 6, 2020

Dear Honorable Governor Doug Ducey,

As Maricopa County Treasurer I respectfully and urgently request that you, as Governor of the great State of Arizona, help taxpayers during these difficult times by calling a Special Session of the State Legislature in order to address tax issues, including extending the deadline to pay the second half of 2019 property taxes to at least June 1, 2020.

We have asked the Legislature to take action ; while many have expressed interest, the response has been disappointingly slow. The push back has been from paid lobbyists with agendas who care more about revenue than about citizens. The recent Executive Order has shut down many businesses causing lost wages and lost jobs. It would appear the citizens of Arizona are nothing more than a revenue source for government. Arizona citizens are dying while government puts revenue above people. Interestingly, government workers are paid regardless, even though many sit idly at home adding no value for taxpayers.

Why haven’t the experts at the Offices who deal directly with these issues been consulted? We have the facts. This is a time-sensitive issue and must be addressed immediately. This 30-day extension will in no way negatively impact any of the scheduled disbursements to school districts, fire districts, or any special districts. All 15 County Treasurers agree that the disbursements will proceed as planned. But all 15 also agree that this extension will give relief to many homeowners who are being negatively impacted by this pandemic.

In Maricopa County, the average amount of interest and penalties paid because of delinquencies during May is about $560,000. (That’s approximately the cost of mailing a tax notice to all homeowners with mortgages in our county as required by Sen. Vince Leach’s SB1113.) Even if you double that to $1,120,000, for the entire month, that is still a small loss considering the Maricopa County Treasurer’s Office has over $300 Million flowing through its coffers each week.*corrected The loss is “relatively insignificant” and is more than made up in our interest earnings projected to exceed $100 Million for FY2020.

Other states have taken similar action ( https://napta.com/wp-content/uploads/2020/03/COVID-NAPTA-.pdf ). Arizona needs to provide relief to taxpayers. We hope and pray for a quick recovery and to get back to normal; however, we do not know that timeline. Even if that happens, much damage has already occurred and many will continue to struggle; and some families and businesses may not ever fully recover from the economic damage.

Royce T. Flora Maricopa County Treasurer

Maricopa County Treasurer Royce Flora Asks Legislature to Extend Property Tax Payment Deadline

Phoenix, AZ (March 26, 2020) - Maricopa County Treasurer Royce Flora today asked the Arizona Legislature to extend the deadline for property owners to pay the second half of 2019 property taxes to June 1st. Taxes on all commercial and residential properties are currently due and are considered past due May 1st.

"With the COVID-19 pandemic continuing to impact our citizens, many of whom have lost their job, the last thing people need to worry about right now is how to pay their property taxes," said Treasurer Royce Flora. "Some people are struggling with paying rent, utilities, and food for their family so we are asking the legislature to give us the authority to extend the deadline to pay property taxes to help families," he added.

The Maricopa County Treasurer’s Office is also asking the Legislature to give all County Treasurers throughout the state the authority to waive all penalties and interest associated with any delinquent property tax.

"We hope the State Legislature will make a quick decision in favor of taxpayers at a time when they need Government help the most," said Treasurer Flora.

October 24, 2019

Press release, county treasurer royce flora responds to unwarranted attack.

The political attack made by Vince Leach, from Pinal County, on the Maricopa County Treasurer’s Office is neither factual nor warranted. The Maricopa County Treasurer has complied with the new law to mail out 2019 Property Tax notices to property owners with a mortgage. As required by SB1033, “ARS § 42-18054: (a) tax statement sent to the mortgagor shall be a written document and may be in any form established by the county treasurer.” This was done.

In an effort to mitigate the costs of this unfunded mandate, Treasurer Royce Flora designed a postcard-size notice like the ones discontinued four years ago because it duplicated information already provided to the taxpayer from both the Assessor and the mortgage companies. Mr. Leach’s unfunded mandate in the SB1033 law cost Maricopa County taxpayers an additional $230,000.00 for printing and mailing, alone. That is not “childish” money.

Mr. Leach’s complaints appear to be a form of retaliation against Treasurer Flora and this office. Mr. Leach did not support Treasurer Flora’s efforts to protect low-income seniors from ever increasing property taxes, and helped lead the effort to kill the bill putting seniors at risk of losing their homes. Mr. Leach was told about the cost before the bill passed and his statement to the Treasurer’s PIO was “have fun.” Maybe that is why people in his county have higher taxes than we do in Maricopa County.

The Maricopa County Treasurer’s Office is the most transparent government entity in the state of Arizona. All our statements, processes, and taxpayer information is on our website, in addition to the several mailings and email blasts throughout the year. Our website is easily accessed and user-friendly. In fact, over 300,000 property owners have accessed our website for their specific property tax information, in addition to general information that it provides.

Treasurer Flora will continue to look for ways to lower costs to taxpayers and, in particular, will work with like-minded elected officials to relieve the tax burden on low income seniors. Mr. Leach clearly is not one of them.

Parcel number 123-45-678 9, can be entered as 123 45 678

Parcel number 123-45-678a 9, can be entered as 123 45 678 a

For Mobile Home/Business Personal Property - Use the personal property roll number with a prefix of 9 as the parcel number. Example: Roll number 60-00-001 8 can be entered as 960 00 001.

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Tax liens are serious business if you owe back taxes. Here’s how they can affect you, as well as some tips for what to do to remove a tax lien.

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What is a tax lien?

A tax lien is a legal claim a government places on real estate or other assets when the owner is past due on taxes. The IRS can place a lien on a person's current home, car, and bank account, as well as any future property they acquire. Municipalities may sell tax liens to investors who pay the tax bill in return for the right to collect the money and interest from property owners.

If you don’t take care of a federal tax lien, a tax levy — an actual seizure of property to pay taxes owed — could come next. Tax levies can include things such as garnishing your wages or seizing assets and bank accounts.

What does it mean if you have a tax lien?

If you owe back taxes and the IRS places a federal tax lien, here’s what could happen next.

Your creditworthiness could take a nosedive. Tax liens may not appear on credit reports anymore , but the IRS can still file a public notice of the tax lien, telling creditors the government has a right to your property. That could jeopardize your ability to get a loan, says David Klasing, a CPA and tax attorney in Irvine, California.

It can jeopardize a home sale or refinancing. Tax liens often surface during title searches. If you have equity in a house you’re trying to sell or refinance, you’ll likely have to use some of it to pay your taxes in order to close.

It can cost you a lot of time. The IRS funnels many overdue taxpayers into its automated collection system, or ACS, which can mean spending hours on hold with the call center, Klasing warns. Some taxpayers might be assigned to a revenue officer, which could mean in-person visits, he adds.

You can end up with a tax levy. If you don’t pay your back taxes after the IRS files a federal tax lien, the IRS may then issue a Notice of Intent to Levy.

How to get a tax lien removed

The easiest way to get a tax lien removed is to pay the outstanding tax bill in full. Once your payment is processed, the IRS will remove the tax lien within 30 days. [0] Internal Revenue Service . Understanding a Federal Tax Lien . View all sources There are some other options to consider as well:

Get on an IRS payment plan

Your tax balance will still accrue interest and penalties until it’s paid off, but if you allow the IRS to take at least three consecutive payments right out of your bank account (called a direct debit installment agreement), you might be able to get the IRS to withdraw the federal tax lien from public record. [0] Internal Revenue Service . Understanding a Federal Tax Lien . Accessed May 3, 2023. View all sources (You’ll still have to pay your tax debt, of course.) You don’t necessarily need to hire anyone to get on an IRS payment plan — you can apply right on the IRS website. Fees run from $0 to $225 depending on the plan and your income.

Ask for an offer in compromise

An OIC, or offer in compromise , is an offer to settle your back taxes for less than the full amount you owe. There are lots of rules, and the IRS typically accepts fewer than half of the applications it gets in a year. [0] Internal Revenue Service . 2022 IRS Data Book . View all sources To even be considered, you need to have filed all of your tax returns, plus make the required estimated tax payments for the current year. You also won’t be considered if you’re in bankruptcy or are being audited.

File an appeal

You can ask for a collection due process hearing from the IRS Office of Appeals if you want a review of a lien or levy notice. Also, if you disagree with an IRS employee’s decision about a lien or levy, you can ask for a conference with the employee’s manager and ask the Office of Appeals to review your case. [0] Taxpayer Advocate Service . Taxpayer Requests Collection Appeals Program . Accessed Sep 16, 2022. View all sources

It’s not a pretty option, but in some cases, it can get rid of tax debt. However, it’s often a long process, there are a lot of rules and it doesn’t always work, Klasing warns.

» MORE: Tax relief and resolution: 5 ways to deal with tax debt

On a similar note...

Tax lien investing: What to know before jumping in

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Tax lien investing can give your portfolio exposure to real estate — all without having to actually own property. Experts, however, say the process is complicated and warn that novice investors can easily get burned. Here’s everything you need to know about investing in a tax lien certificate, including how it works and the risks involved.

What is a tax lien?

A tax lien is a legal claim that a local or municipal government places on an individual’s property when the owner has failed to pay a property tax debt. The notice typically comes before harsher actions, such as a tax levy, where the Internal Revenue Service (IRS) or local or municipal governments can actually seize someone’s property to recover the debt.

What are tax lien certificates?

A tax lien certificate is created when a property owner has failed to pay their taxes and the local government issues a tax lien. The certificate shows the taxes that are owed along with any interest and penalties. Tax lien certificates are typically auctioned off to investors looking to profit.

How tax lien investing works

To recover the delinquent tax dollars, municipalities can then sell the tax lien certificate to private investors, who take care of the tax bill in exchange for the right to collect that money, plus interest, from the property owners when they eventually pay back their balance.

Currently, 29 states plus Washington, D.C. allow for the transfer or assignment of delinquent real estate tax liens to the private sector, according to the National Tax Lien Association, a nonprofit that represents governments, institutional tax lien investors and servicers. Here’s what the process looks like.

1. Investors have to bid for the tax lien in an auction

Tax lien investors have to bid for the certificate in an auction, and how that process works depends on the specific municipality. Would-be investors should start by familiarizing themselves with the local area, the National Tax Lien Association recommends. Contact tax officials in your area to inquire how those delinquent taxes are collected.

Auctions can be online or in person. Sometimes winning bids go to the investor willing to pay the lowest interest rate, in a method known as “bidding down the interest rate.” The municipality establishes a maximum rate, and the bidder offering the lowest interest rate beneath that maximum wins the auction. Keep in mind, however, that as interest rates fall, so do profits.

Other winning bids go to those who pay the highest cash amount, or premium, above the lien amount.

2. The winning bidder pays the balance and handles foreclosure proceedings

What happens next for investors isn’t something that occurs on a stock exchange. The winning bidder has to pay the entire tax bill, including the delinquent debt, interest and penalties. Then, the investor has to wait until the property owners pay back their entire balance — unless they don’t.

Most homeowners have a so-called “redemption period” — what’s generally one to three years — before they’re required to pay the taxes plus interest in full. But if the homeowner doesn’t return the tax debt, the tax lien investor is the one responsible for kickstarting the foreclosure process, which would allow the investor to assume ownership of the property.

If you win a lien at auction, you must also learn your responsibilities. For example, in Illinois, within four months of purchasing a lien, you’re required to notify the property owners that you possess the lien and can foreclose if they don’t repay, says Joanne Musa, a tax lien investment consultant and founder of TaxLienLady.com. Then another letter must be sent before the end of the redemption period.

Benefits and risks of tax lien investing

Experts recommend thinking carefully about the risks involved before jumping into tax lien investing. While some investors can be rewarded, others might be caught in the crossfire of complicated rules and loopholes, which in the worst of circumstances can lead to hefty losses.

1. Tax liens can be a higher-yielding investment, but not always

From a mere profit standpoint, most investors make their money based on the tax lien’s interest rate. Interest rates vary and depend on the jurisdiction or the state. For example, the maximum statutory interest rate is 16 percent in Arizona and 18 percent in Florida, while in Alabama the rate is fixed at 12 percent, according to the National Tax Lien Association.

Profits, however, don’t always amount to yields that high during the bidding process. In the end, most tax liens purchased at auction are sold at rates between 3 percent and 7 percent nationally, according to Brad Westover, executive director of the National Tax Lien Association.

Before retiring, Richard Rampell, formerly the chief executive of Rampell & Rampell, an accounting firm in Palm Beach, Florida, experienced this firsthand. Rampell was part of a small group that invested in local tax liens in the late 1990s and early 2000s. At first, the partners did well. But then big institutional investors, including banks, hedge funds and pension funds, chased those higher yields in auctions around the country. The bigger investors helped bid down interest rates, so Rampell’s group wasn’t making significant money anymore on liens.

“At the end, we weren’t doing much better than a CD,” he says. “For the amount of work, it wasn’t worth it.”

2. Tax liens come with an expiration date

If the property owner fails to pony up the property taxes by the end of the redemption period, the lienholder can initiate foreclosure proceedings to take ownership of the property. But that rarely happens: The taxes are generally paid before the redemption date. Liens also are first in line for repayment, even before mortgages.

Even so, tax liens have an expiration date, and a lienholder’s right to foreclose on the property or to collect their investment expires at the same time as the lien.

After you’ve bought a lien, you may also want to pay taxes on the property in the years that follow, so no one else can purchase a lien and thus have a claim on the property.

“Sometimes it’s six months after the redemption period,” Musa says. “Don’t think you can just buy and forget about it.”

3. Tax lien investing requires thorough research

Individual investors who are considering investments in tax liens should, above all, do their homework. Experts suggest avoiding properties with environmental damage, such as one where a gas station dumped hazardous material. One reason for this: In the event of foreclosure, the property would be yours.

“You should really understand what you’re buying,” says Richard Zimmerman, a partner at Berdon LLP, an accounting firm in New York City. “Be aware of what the property is, the neighborhood and values, so you don’t buy a lien that you won’t be able to collect.”

Would-be investors should also check out the property and all liens against it, as well as recent tax sales and sale prices of similar properties. If a property has other liens, that might make it harder to gain its title in the event of foreclosure.

Yet, keep in mind that the information you find can often be outdated.

“People get a list of properties and do their due diligence weeks before a sale,” Musa says. “Half the properties on the list may be gone because the taxes get paid. You’re wasting your time. The closer to the date you do your due diligence, the better. You need to get an updated list.”

Bottom line

Because tax lien investing involves so much due diligence, it might be worthwhile to consider investing passively through an institutional investor who is a member of the National Tax Lien Association. Westover says 80 percent of tax lien certificates are sold to members of the NTLA, and the agency can often match up NTLA members with the right institutional investors. That might make managing the process easier, especially for a beginner.

While tax lien investments can offer a generous return, be aware of the fine print, details and rules.

“I’ve had a few clients and friends who have invested in tax liens on a big-time basis almost as a business and have done well,” says Martin Cass, regional director of private client services at BDO USA, an accounting firm in West Palm Beach, Florida. “But it’s complicated. You have to understand the details.”

— Bankrate’s Brian Baker contributed to an update of this story.

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You asked for (1) a summary of the New Jersey law requiring companies that are assigned tax liens to refund tax collections under certain circumstances and (2) a comparison with similar provisions of Connecticut law.

Under New Jersey and Connecticut law, municipalities have a lien for unpaid property taxes on real property and can assign the liens to private parties. Under New Jersey law, if the assignee collects fees above those authorized by law, it must forfeit the lien to the aggrieved party. The aggrieved party can sue the assignee for a refund of the money it has collected. In a recent decision (enclosed), a New Jersey court held that (1) assignees are not authorized to enter into installment payment agreements with the delinquent taxpayer to pay off the outstanding tax obligation, (2) knowing violations of the law trigger the refund and forfeiture provisions, and (3) such violations are per se violations of New Jersey ' s Consumer Fraud Act. Connecticut ' s law is significantly less detailed than New Jersey ' s and has no refund and forfeiture provisions.

NEW JERSEY TAX LIEN ASSIGNMENT LAW

Under the New Jersey Tax Sale Law (N.J. Stat. § 54:5-1 et seq. ), unpaid property taxes, together with interest, penalties, and costs, are a lien on the affected land. If the lien remains in arrears on July 1 of the year following the year the taxes became delinquent, the municipality can sell the property to enforce the lien. If no one bids on the property, the municipality purchases it for the amount of the delinquent taxes. The purchaser receives the tax sale certificate, which is a conveyance of the property (subject to redemption) and an assignment of the tax lien.

The property ' s former owner, or anyone else with an interest in the property, can redeem it within six months (if it was purchased by the municipality) or two years (if purchased by another party). The law specifies the amount that must be paid to redeem the property. If the certificate was purchased by a party other than the municipality, the redemption price includes (1) all subsequent municipal liens, plus interests and costs, that were actually paid by the certificate holder and (2) interest on this amount at the rate chargeable by the municipality. The former owner or other interested party also must pay the holder of the certificate (whether a private party or the municipality) the amount it paid for the certificate.

Under N.J. Stat. § 54:5-63.1, if any non-municipal owner of a tax sale certificate knowingly charges any fee in connection with redemption of the certificate above the amount permitted by the Tax Sale Law, the holder must forfeit the certificate to the person who was charged the excessive fee. This person can also sue the certificate holder for the amount that he paid. The collection of any excessive charge in connection with the redemption or assignment of the certificate is considered prima facie evidence that the owner knowingly charged the excessive fee.

In Varsolona v. Breen Capital Services Corp. , Sup. Ct. N.J. Docket No. Hud.-L-2552-98 (Dec.22, 1999), the court addressed three questions:

1. if under the Tax Sale Law the holder of a tax sale certificate can enter into a private installment payment agreement directly with the delinquent taxpayer to pay off the outstanding tax obligation;

2. if the court finds a violation of the Tax Sale Law, does this trigger forfeiture under N.J. Stat. § 54:5-63.1; and

3. if the court finds that violations of the Tax Sale Law trigger the forfeiture provision, do they also constitute a per se violation of the Consumer Fraud Act (N.J. Stat 56:8-1)?

In this case, First Boston Corporation bought liens held by Jersey City at auctions conducted in 1993 and 1994. The total purchase price was approximately $50 million. Breen Capital Services Corp. was responsible for the day-to-day administrative and management activities of the tax sale certificates. Breen offered homeowners, including the plaintiffs in this case, the option of paying off their tax indebtedness over time by entering into individualized installment payment plans (IPPs). Under the terms of these agreements, the plaintiffs agreed to make monthly payments on the certificates in exchange for Breen not initiating foreclosure. Breen charged 18.25% interest under this program, above the 18% maximum allowed for municipalities.

The court held that while the statute allowed municipalities to enter into installment payment agreements with delinquent taxpayers, this did not extend to private certificate holders. The court also rejected the defendant ' s argument that they had the right to make such contracts under common law. The court concluded that: (1) any charges imposed under these agreements violated the Tax Sales Law; (2) the collection of charges under the IPPs and the rate of interest charged triggered the forfeiture and refund provisions of the law; (3) these violations constitute a per se violation of the state ' s Consumer Fraud Act. Breen has moved for reconsideration of the decision.

COMPARABLE CONNECTICUT LAW

Connecticut ' s law regarding the assignment of tax liens is significantly less detailed than New Jersey ' s. CGS § 7-148(c)(2) allows municipalities to provide for assignment of tax liens on real property to the extent authorized by the statutes. CGS § 12-195h allows a municipality to assign, for consideration, any liens filed to secure unpaid taxes on real property. The assignment must be authorized by resolution of the municipality ' s legislative body. The consideration received by the municipality is negotiated between it and the assignee. The assignee has the same powers and rights at law and in equity as the municipality and its tax collector would have had with regard to: (1) priority of the lien, (2) interest accrual, and (3) fees and expenses of collection. The assignee also has the same rights to enforce the lien as any private party holding a lien on real property. These are no forfeiture or refund provisions.

TITLE 2. STATE TAXATION

SUBTITLE B. ENFORCEMENT AND COLLECTION

CHAPTER 113. TAX LIENS

SUBCHAPTER A. FILING AND RELEASE OF STATE TAX LIENS

Sec. 113.001. TAX LIABILITY SECURED BY LIEN. (a) All taxes, fines, interest, and penalties due by a person to the state under this title are secured by a lien on all of the person's property that is subject to execution.

(b) The lien for taxes attaches to all of the property of a person liable for the taxes.

Acts 1981, 67th Leg., p. 1518, ch. 389, Sec. 1, eff. Jan. 1, 1982. Amended by Acts 1985, 69th Leg., ch. 37, Sec. 2, eff. Aug. 26, 1985.

Sec. 113.002. TAX LIEN NOTICE. (a) The comptroller shall issue and file a tax lien notice required by this chapter.

(b) A tax lien notice must include the following information:

(1) the name and address of the taxpayer;

(2) the type of tax that is owing;

(3) each period for which the tax is claimed to be delinquent; and

(4) the amount of tax only due for each period, excluding the amount of any penalty, interest, or other charge.

(c) A tax lien notice may include other relevant information that the comptroller considers proper.

Acts 1981, 67th Leg., p. 1518, ch. 389, Sec. 1, eff. Jan. 1, 1982.

Sec. 113.0021. APPLICATION TO OTHER TAXES AND FEES. This chapter also applies to a tax or fee that the comptroller is required to collect under a law not included in this title.

Added by Acts 1991, 72nd Leg., ch. 705, Sec. 8, eff. Sept. 1, 1991.

Sec. 113.003. EXECUTION OF DOCUMENTS. The comptroller may execute, certify, authenticate, or sign any instrument authorized under this chapter to be issued by the comptroller or under the comptroller's authority with a facsimile signature and seal.

Sec. 113.004. STATE TAX LIEN BOOK. The county clerk of each county shall provide at the expense of the county a well-bound book, entitled "State Tax Liens," in which notices of state tax liens filed by the comptroller are recorded.

Acts 1981, 67th Leg., p. 1519, ch. 389, Sec. 1, eff. Jan. 1, 1982.

Sec. 113.005. DUTIES OF COUNTY CLERK. (a) On receipt of a tax lien notice from the comptroller, the county clerk shall immediately:

(1) record the notice in the state tax lien book;

(2) note on the notice the date and hour of its recording;

(3) enter in an alphabetical index the name of each person to whom the notice applies, along with the volume and page number of the state tax lien book where the notice is recorded;

(4) furnish to the comptroller, on a form prescribed by the comptroller, a notice showing that the tax lien notice is recorded and filed, the date and hour of its recording and filing, and the volume and page number of the state tax lien book where the lien is recorded; and

(5) send the comptroller a statement of the fee due for recording and indexing the lien.

(b) This section prevails over conflicting provisions of other law.

Sec. 113.006. EFFECT OF FILING TAX LIEN NOTICE. (a) The filing and recording of a tax lien notice constitutes a record of the notice.

(b) One tax lien notice is sufficient to cover all taxes of any nature administered by the comptroller, including penalty and interest computed by reference to the amount of tax, that may have accrued before or after the filing of the notice.

Acts 1981, 67th Leg., p. 1519, ch. 389, Sec. 1, eff. Jan. 1, 1982. Amended by Acts 1997, 75th Leg., ch. 1040, Sec. 10, eff. Sept. 1, 1997; Acts 2003, 78th Leg., ch. 209, Sec. 15, eff. Oct. 1, 2003.

Sec. 113.007. EVIDENCE OF TAX PAYMENT. A payment in whole or in part of a tax secured by a state tax lien may be evidenced by a receipt, acknowledgment, or release signed by an authorized representative of the state agency that filed the lien.

Sec. 113.008. RELEASE OF LIEN ON SPECIFIC PROPERTY. (a) With the approval of the attorney general, the comptroller may release a state tax lien on specific real or personal property when payment of the reasonable cash market value of the property is made to the comptroller.

(b) The value of the property to be released shall be determined in the manner prescribed by the comptroller.

Sec. 113.009. FILING OF TAX LIEN RELEASE. (a) A tax lien release shall be filed in the office of the county clerk in the manner that other releases are filed. On the filing of a release, the county clerk shall release the state tax lien filed with the clerk in accordance with the regulations of the clerk's office.

(b) The county clerk may send the comptroller a statement of the customary fee due for the filing and indexing of the release of the tax lien notice, and the comptroller may pay the fee charged. The comptroller may collect the amount of the fee paid under this subsection by the comptroller from the taxpayer against whom the lien was filed.

(c) A state tax lien filed under this chapter may not be released fully until the taxpayer pays all other taxes, penalties, interest, fees, or sums that the taxpayer owes the state and that are administered or collected by the comptroller.

Acts 1981, 67th Leg., p. 1519, ch. 389, Sec. 1, eff. Jan. 1, 1982. Amended by Acts 1983, 68th Leg., p. 460, ch. 94, Sec. 5, eff. May 10, 1983; Acts 2001, 77th Leg., ch. 442, Sec. 7, eff. Sept. 1, 2001.

Sec. 113.010. RELEASE OF LIEN BY ASSIGNEE. A release in whole or in part by an assignee of the state's claim for a tax and of its tax lien or of a judgment for a tax secured by a tax lien may be filed and recorded with the county clerk for the same fee and in the same manner as a release by the comptroller or by another state agency that may file a notice of a lien in the state tax lien records.

Acts 1981, 67th Leg., p. 1520, ch. 389, Sec. 1, eff. Jan. 1, 1982.

Sec. 113.011. LIENS FILED WITH TEXAS DEPARTMENT OF MOTOR VEHICLES. The comptroller shall furnish to the Texas Department of Motor Vehicles each release of a tax lien filed by the comptroller with that department.

Acts 1981, 67th Leg., p. 1520, ch. 389, Sec. 1, eff. Jan. 1, 1982. Amended by Acts 1995, 74th Leg., ch. 165, Sec. 22(69), eff. Sept. 1, 1995.

Amended by:

Acts 2009, 81st Leg., R.S., Ch. 933 (H.B. 3097 ), Sec. 3K.07, eff. September 1, 2009.

SUBCHAPTER B. APPLICATIONS AND STATUS OF STATE TAX LIENS

Sec. 113.101. APPLICABILITY OF LIEN BEFORE FILING. (a) No lien created by this title is effective against a person listed in Subsection (b) of this section who acquires a lien, title, or other right or interest in property before the filing, recording, and indexing of the lien:

(1) on real property, in the county where the property is located; or

(2) on personal property, in the county where the taxpayer resided at the time the tax became due and payable or in the county where the taxpayer filed the report.

(b) This section applies to a bona fide purchaser, mortgagee, holder of a deed of trust, judgment creditor, or any other person who acquired the lien, title, or right or interest in the property for bona fide consideration.

Sec. 113.102. APPLICABILITY OF LIEN TO MERCHANDISE PURCHASED. No lien created by this title is effective against a bona fide purchaser for value of goods, wares, or merchandise daily exposed for sale in the regular course of business if the purchase and actual or constructive possession of the goods, wares, or merchandise is completed before the goods, wares, or merchandise are seized under a valid legal writ or other lawful process.

Sec. 113.103. APPLICABILITY OF LIEN TO FINANCIAL INSTITUTIONS. (a) A bank or savings and loan institution is not required to recognize the claim of the state to a deposit or to withhold payment of a deposit to a depositor or to the depositor's order unless the bank or institution has been served by the comptroller with a notice of the state's claim.

(b) Notice of a state claim must be in writing and be served by certified mail to the bank or institution or served personally on the president or any vice-president, cashier, or assistant cashier of the bank or institution.

Sec. 113.104. PREFERENTIAL TRANSFERS. (a) The comptroller may recover in a suit brought in Travis County by the attorney general the property or the value of property transferred in a preferential transfer.

(b) The transfer of property or an interest in property by a person who at the time of the transfer is insolvent and has received or withheld money as a tax under this title or who is delinquent in the payment of a tax imposed by this title is a preferential transfer if the transfer occurred during the six-month period before the date of the filing of a tax lien notice against the transferor as permitted by this chapter and if the transfer is made with intent to defraud the state. The transfer of the property or the interest in property without adequate and sufficient consideration creates a rebuttable presumption that the transfer was made with intent to defraud the state. A transfer with sufficient consideration creates a rebuttable presumption that the transfer was not made with intent to defraud the state.

(c) All property subject to execution of a transferee in a preferential transfer is subject to a prior lien in favor of the state to secure the recovery of the value of the property transferred in a preferential transfer.

(d) The remedies provided by this section are cumulative of other remedies of the comptroller as a creditor.

Sec. 113.105. TAX LIEN; PERIOD OF VALIDITY. (a) The state tax lien on personal property and real estate continues until the taxes secured by the lien are paid.

(b) The state tax lien on personal property and real estate attaches to personal property and real estate owned by the taxpayer beginning on the first day of the period for which the lien is filed by the state.

Acts 1981, 67th Leg., p. 1521, ch. 389, Sec. 1, eff. Jan. 1, 1982. Amended by Acts 1985, 69th Leg., ch. 37, Sec. 1, eff. Aug. 26, 1985; Acts 1987, 70th Leg., 2nd C.S., ch. 1, Sec. 9, eff. July 21, 1987; Acts 2001, 77th Leg., ch. 442, Sec. 8, eff. Sept. 1, 2001.

Sec. 113.106. LIEN; SUIT TO DETERMINE VALIDITY. (a) In an action to determine the validity of a state tax lien, the lien shall be:

(1) perpetuated and foreclosed; or

(2) nullified.

(b) If a lien is perpetuated and foreclosed, no further action or notice on the judgment is required, and the notice of the state tax lien on record continues in effect.

(c) If all or part of a lien is nullified, a certified copy of the judgment may be filed with the county clerk of the county where the tax lien notice was filed and may be recorded in the same manner as a release by the comptroller.

(d) Execution, order for sale, or other process for the enforcement of the lien may be issued on the judgment at any time.

(e) A person must bring suit to determine the validity of a state tax lien not later than the 10th anniversary of the date the lien was filed. If more than one state tax lien has been filed relating to the same tax liability, the 10-year limitation period provided by this subsection is calculated from the date of the filing of the first lien relating to the liability.

(f) A taxpayer is presumed to have received proper notice of the taxpayer's tax liability if the notice is delivered to the taxpayer's last address of record with the comptroller. The taxpayer may rebut the presumption by presenting substantive evidence that demonstrates that notice of the tax liability was not received. If the taxpayer rebuts the presumption of receipt of proper notice with evidence the comptroller considers satisfactory, the period of limitations for filing suit provided by Subsection (e) does not apply.

Acts 1981, 67th Leg., p. 1521, ch. 389, Sec. 1, eff. Jan. 1, 1982.

Acts 2007, 80th Leg., R.S., Ch. 931 (H.B. 3314 ), Sec. 7, eff. June 15, 2007.

Sec. 113.107. ASSIGNMENT OF JUDGMENT ON LIEN. (a) A judgment perpetuating and foreclosing a tax lien may be transferred and assigned for the amount of the taxes covered in the judgment and may be reassigned by a subsequent holder.

(b) An assignment shall be filed and recorded and shall be released in the same manner as are liens before judgment.

(c) If notice of the assignment is given as provided by Subchapter E of Chapter 111 of this code, the assignee is fully subrogated to and succeeds to all rights, liens, and remedies of the state.

Tax Lien Assignments

Periodically Tower Capital Management will offer investors the ability to buy tax liens through an assignment process. These tax liens are listed by jurisdiction and can be acquired in some cases at full redemptive value and in others at a discount from full redemptive value.

Please note that Tower Capital Management does not provide any investment, legal or financial advice to potential investors. As with any investment, investors should carefully consider their objectives, risks, expenses and conduct their own due diligence prior to making an offer. Further, investors should be familiar with the laws governing tax certificates in the jurisdictions in which they are interested. Tower Capital Management only represents that the tax lien certificates it sells are valid liens, and makes no representations as to the underlying collateral or any overall return on investment. We strongly advise potential investors to perform whatever due diligence they deem necessary to make an informed decision.

Should you have any questions about our assignment process or the particulars of any tax liens offered, please feel free to contact us at [email protected] . Please again note that Tower Capital Management is not an advisory group and no investment, legal or financial advice will be provided.

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Assignment Purchasing of Tax Liens

I know that you can purchase tax deeds in Texas with a 6 month redemption period at 25%. I also know that these tax deeds are for sale at auction in every county every month. What I do not know is whether or not the state of Texas allows assignment purchasing for investors to buy tax deeds that do not sell at auction over the counter. Does anyone know? I don't have the time nor the resources to be going all over the state for these auctions and I don't have the money to compete with some of these big-money companies in an online bidding war. What I really need is over the counter deeds that I can invest in. I have been searching the internet for the answer and cannot find it anywhere. Does Texas even do this sort of thing? I know other states do.

Thanks in advance!

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Tax lien foreclosure informational outline

However, if your property is foreclosed, and it is worth more than the tax debt owed, you still can claim compensation from the Plaintiff for the excess value (the “equity”) of the property, even if you no longer own it.  For more information about home equity compensation, review: Land Court Statement on Tyler v. Hennepin County Minnesota .

The foreclosure process includes a case in the Land Court. Chapter 60 of the Massachusetts General Laws is the law that establishes the process for tax lien foreclosures.

This Land Court Tax Lien Foreclosure Informational Outline is intended to provide a general overview to self-represented litigants, taxpayers, and attorneys on the tax lien process. The outline provides a summary of the process, from the collection of the real estate tax or water/sewer bills to steps that parties can take after the court issues a Judgment. The outline also contains a definitions section in the beginning, and available resources and sample documents at the end. Some of the resources listed at the end of the outline are legal service organizations. These organizations might be able to provide information to taxpayers both before and after a case is filed at the Land Court. The outline also provides information on remedies that might be available to taxpayers before a tax lien foreclosure if the taxpayer is not able to afford their real estate taxes.

The processes, legal requirements, and deadlines in tax lien foreclosure cases are very technical and complicated. This guide does not include everything you may need to know if your property is subject to a tax lien foreclosure. If you do not answer the complaint, appear at hearings, and defend, you may end up permanently losing ownership of your property. If a tax lien foreclosure case concerning your property has been filed in the Land Court, you should seek advice from a lawyer, if possible. More information is available on the Land Court’s website at Land Court Tax Lien Foreclosure Cases Resources .

Table of Contents

I. definitions.

• Assessor – The town or city’s assessor identifies real estate (land and buildings) that can be taxed.  The assessor also sets the tax rate and hears applications for abatements (see definition below). See G. L. c. 59, sec. 21 . Assessors are supervised by the Massachusetts Department of Revenue, regardless of whether the assessor is elected or appointed by the mayor or select board.
• Abatement – If the taxpayer believes the property is over-assessed (not valued fairly compared to other similar properties) or not classified correctly, the taxpayer can file for an abatement of taxes with the assessor to change the assessed value or classification. Abatements can reduce the amount the property is valued and so reduce the taxpayer’s tax bill. There are strict rules and deadlines for applying for an abatement. The Land Court has no role in the abatement process. In a tax lien foreclosure case, the Land Court is not able to consider challenges to the valuation of your property or requests for an abatement. For more information on the strict deadlines and rules of the tax abatement process, see Part (IV) – Remedies below.
• Tax Bill – Bill sent from the town or city assessor to the current owner of the property for property taxes. The property tax rate, amongst other requirements, must be printed on the tax bill. See G. L. c. 60, sec. 3A . Once a tax taking (see definition below) is made, the back taxes owed usually no longer appear on the taxpayer’s tax bill. Water and sewer bills can also be included in tax takings. 
• Collector – The person from the town or city who prepares and sends tax bills, receives payments, and credits payments.
• Treasurer – After a tax taking is made, the property account is transferred from the city or town’s collector to the city or town’s treasurer into a tax title account where it gains 16% simple interest annually. Once the account is transferred to the city or town’s treasurer, the back taxes owed usually no longer appear on the taxpayer’s real estate tax bills.
• Municipality – Another name for a city or town.
• Private Party – Any private individual or company that takes the place of a city or town for purposes of further action on a tax title account. Where a private party takes the place of the city or town, the private party’s interest in the tax title account is recorded with the registry of deeds in the county where the property is located by filing a Collector’s Deed or Instrument of Assignment (see definition below).
• Instrument of Assignment – Document that can transfer a tax account and/or a tax title (see below) to a private party.
• Plaintiff – In a case that asks the court to foreclose the right of redemption (see definition below), the plaintiff is a city or town (municipality) or a private party who takes the place of the municipality.
• Real Estate Tax Lien – A lien on real estate that a city or town automatically gets when it assesses real estate taxes and water/sewer bills. A tax lien allows a city, town, or sometimes a third party to get the tax title (see below) to the property, and after proper proceedings, to get full ownership of the property to enforce the collection of real estate taxes or water/sewer bills.
• Tax Taking – A city or town can make a tax taking by filing an Instrument of Taking (document) with the registry of deeds (see definition below) in the county where the land is located. See G. L. c. 60, secs. 53 - 54 . This provides the city or town with the tax title to the property.
• Tax Sale – Instead of making a tax taking, a city or town can hold a public auction that sells a tax title to a buyer. After the auction, a Collector’s Deed is filed with the registry of deeds (see definition below) in the county where the land is located. See G. L. c. 60, secs. 37 - 43 . The Collector’s Deed states why the sale occurred, the purchase price, the name of the person who was asked to pay the taxes, and where notice of the sale was provided. See G. L. c. 60, sec. 45 . It provides the buyer with the tax title to the property. (Sometimes, at a tax sale auction, the tax title might be bought for the city or town by the tax collector if there are no bids sufficient to cover all tax, interest, and charges owed. See G. L. c. 60, sec. 48 )
• Assignment Auction – If the city or town has made a tax taking (see above) and itself owns a tax title, the city or town still can assign (sell/give) legal ownership of the tax title at a later time to the highest bidder at a public auction. The city or town can give legal ownership of one or a group of tax titles. See G. L. c. 60, sec. 52 . The treasurer must give notice of the auction in a local newspaper and post notice in at least two public places at least 14 days before the auction. At least 10 days before the auction, the treasurer must mail notice of the auction to the taxpayer. The winning bidder at the auction must pay the municipality within 2 weeks of the auction date. When this happens, an Instrument of Assignment (see definition above) is filed with the registry of deeds (see definition below) in the county where the land is located within 60 days of the date it was signed. The Instrument of Assignment includes the redemption amount (see definition below), post-auction interest (interest from auction date to date Instrument of Assignment is signed), and the premium (amount paid over the amount of back taxes owed), if any.
• Bulk Sale – If a city or town has not taken or sold the tax title to the property, it can assign or transfer the right to collect the tax bill to a private party, which allows a private party to make a taking of the tax title as if it were the city or town. The city or town can do this by bundling past-due tax bills and assigning them together through a “request for proposal” process. See G. L. c. 60, sec. 2C . A request for proposal process is a process where cities and towns list the property or properties for which they are offering to assign collection rights, and ask for bids. To carry out the assignment, an Instrument of Assignment (see definition above) is filed with the registry of deeds (see definition below), which includes the list of owners and parcels of land involved in the assignment. The process is highly controlled by the statute. Additional information regarding bulk sale tax assignments and tax lien assignments can be found online.
• Subsequent Tax Bills – The municipality may add or “certify” unpaid taxes due later in time to the tax title account. See G. L. c. 60, secs. 50 , 61 . It is important to know how the private party obtained the tax title account and whether taxes for later years can be added onto the redemption amount (see definition below). See Tallage Lincoln v. Williams , 485 Mass. 449 (2020) (finding G. L. c. 60 sec. 45 purchasers of Collector’s Deed, but not G. L. c. 60, sec. 52 assignees, may include subsequent tax payments in the redemption amount) 
• Right of Redemption – The taxpayer’s ability to prevent a tax foreclosure by paying off the real estate tax or water/sewer bill along with interest, fees, and costs (additional expenses such as filing fees, court costs, mailing fees, and other similar costs) and keep the property.
• Redemption Amount – Amount the taxpayer needs to pay to prevent a foreclosure and keep the property, which includes the outstanding real estate taxes and/or water/sewer bill, interest, legal fees, and costs (additional expenses such as filing fees, court costs, mailing fees, and other similar costs).
• Foreclosure of the Right of Redemption – A legal proceeding in the Land Court that ends the taxpayer’s ability to pay off the redemption amount (see definition above) and keep the property. When the court enters a Judgment of Foreclosure, the municipality or private party has full ownership of the property (unless the court allows a Motion to Vacate the Judgment due to a lack of due process or for other legal reasons. A lack of due process occurs where the plaintiff does not follow certain requirements of the law, the Massachusetts Constitution, or the United States Constitution.). A taxpayer may claim compensation from the plaintiff for the excess value of the foreclosed property – the “equity” (see definition below) – if the property is worth more than the tax debt owed, even though the taxpayer no longer owns the property Massachusetts laws do not give the Land Court jurisdiction over compensation claims.
• Claimed Right of Redemption – Usually done in the Answer filed by the property owner or taxpayer with the court. It is a claim of the taxpayer’s right to pay off the redemption amount (see definition above) and keep ownership to property. See G. L. c. 60, sec. 68 . In the Answer, the taxpayer may also question the validity of the tax title held by the plaintiff (municipality or private party) usually by identifying issues with the procedures the plaintiff followed to enforce the lien or legal claim. See G. L. c. 60, sec. 70 . 
• Equity – The value of the property minus the redemption amount (see definition above) and any other liens.
• Registry of Deeds – Documents related to the ownership of land are filed with the registry of deeds in the county where the land is located. There are 21 different registry districts in the state of Massachusetts. Some counties have more than one registry district. See G. L. c. 36, sec. 1. Most of the documents filed with the registry of deeds are available online at https://www.masslandrecords.com/ .There are two categories of land in Massachusetts – recorded land and registered land. Usually, a piece of land is filed with either the recorded or registered system, but sometimes with both. Both systems can be searched online. Title to recorded land is shown by a deed. Title to registered land is shown by a certificate of title.
• Docket – record of all papers filed with the court and actions taken by the court. It is available to the public and can be searched online at http://www.masscourts.org .

II. The process (see generally G.L. c. 59 and G.L. c. 60)

• Unpaid Bill – If a tax bill or water/sewer bill is unpaid for more than 30 days, the collector mails a demand for payment to the last, best address for the taxpayer if the collector wants to enforce the lien or legal claim on the property. If payment is not made within 14 days, the collector can start the process for a tax taking. In addition to a tax taking discussed here, there are other methods collectors can use to collect taxes, such as suing for the amount owed in District Court under G. L. c. 60, sec. 35 ; seizing and selling the owner’s personal property under G. L. c. 60, secs. 24 - 28 ; arresting the owner under G. L. c. 60, sec. 29 ; withholding payment of any money owed to the owner under G. L. c. 60, sec. 93 ; and denying or revoking certain local licenses or permits under G. L. c. 40, sec. 57 . The collector can choose what to do and can pick more than one method at the same time.
• Notice of Taking/Sale – If payment of real estate taxes or a water/sewer bill is not made within 14 days, the collector gives notice in a local newspaper of the intention either to (1) sell the tax title to the property by public auction or (2) take the tax title to the property. Notice is also posted in 2 or more public places (examples city or town hall, library, etc.). For a general example, see attached sample newspaper Notice of Assignment and sample pre-sale Notice of Assignment to owners. Outstanding bills gain interest at a rate of 14% annually. Notice has to be provided 14 days before the sale or taking. 
• Tax Title – If the city or town takes the property by way of a tax taking, the collector records an Instrument of Taking.  See attached sample Instrument of Taking. If the collector sells the property by way of a tax sale to a private party, the collector records a Collector’s Deed. See attached sample Collector’s Deed. The Collector’s Deed or Instrument of Taking must be recorded at the registry of deeds where the land is located within 60 days of the sale or taking. The treasurer also can assign or transfer the tax title to a private party who takes the place of the municipality for the purpose of additional action on the tax title account. See G. L. c. 60, sec. 52 . See attached sample Instrument of Assignment of Tax Title. Before a tax taking or sale is made, the city or town may assign or transfer the right to make a tax taking to a private party. See G. L. c. 60, sec. 2C . 
• Tax Title Account - Once the taking or Collector’s Deed is made, the account is transferred from the collector to the treasurer or held by a private party. Simple interest then builds up at a rate of 16% annually. See G. L. c. 60, sec. 62 (which describes paying off the amount due or redeeming before a case is brought in the Land Court). See also G. L. c. 60, sec. 68 (which describes the terms of paying of the amount due or redeeming after a case is brought in the Land Court). In the majority of municipalities, once the account is transferred, the back taxes owed no longer appear on the taxpayer’s real estate tax bills.
• Negotiations – Depending on the circumstances, a tax title might be held by either a municipality or a private party. Information regarding the current holder of the tax title account must appear on the record at the registry of deeds where the land is located. The taxpayer can contact the municipality or private party as soon they find out about the tax taking to determine the amount owed and to discuss the possibility of accepting payment on an installment basis. As a reminder, interest builds up at 16% annually. A municipality cannot enter into a payment plan if the tax title already has been assigned or transferred to a private party. If the tax title was assigned or transferred to a private party, the taxpayer should contact the private party.
• What is Foreclosure of Right of Redemption – It ends the taxpayer’s right to redeem the property (to pay off the amount due and keep the property).
• Procedure – Cases to foreclose a taxpayer’s right to redeem or keep a property can only be filed in the Land Court. See attached sample Complaint. The case can be brought six months after the taking, unless the property is abandoned or the assessed value of the property is less than the outstanding taxes or water/sewer bill, in which case a city or town can bring a case at any time. See G. L. c. 60, sec. 65 . The case can also be brought before the six months have passed if the taxpayer consents in writing. There is no end date (statute of limitation) by which foreclosure actions must be filed.
• After Filing of Complaint – When the plaintiff (municipality or private party) files the Complaint, the Land Court names a title examiner to conduct an abbreviated search to identify all people and entities who have an interest in the property (such as equity owners and mortgage holders). See G. L. c. 60, sec. 66 . The Land Court then serves the Tax Lien Citation upon those people or entities who have an interest in the property by certified mail (or by registered mail for addresses outside the United States and its territories). See attached Tax Lien Citation and Limited Assistance Representation Information Sheet. The Tax Lien Citation has a deadline for the taxpayer or property owner to answer, called a return date. If the citation is not signed for by all parties who have an interest, for whatever reason (the party has moved, refused to accept the mail, or died), the court must try again, at a more current address, by certified mail, deputy sheriff (or the equivalent outside of Massachusetts), or newspaper publication. Plaintiffs are expected to provide the contact information needed to make service on (give notice to) all interested parties. Interested parties that may require notice by newspaper publication include unknown owners, deceased parties without allowed Massachusetts probates, terminated trusts, dissolved or defunct business entities, and parties whose whereabouts cannot be determined after a diligent search.
• Answer or Default – The taxpayer may file an Answer providing notice to the court of the taxpayer’s response to the case. A Tax Lien Answer and Certificate of Service form is available at  Land Court forms . See also attached form Tax Lien Answer. The taxpayer must answer, but does not need to use the form Tax Lien Answer. The Answer should be eFiled, mailed, delivered, or dropped off in person at the Land Court so that it is received by the return date, which is the deadline for the taxpayer to file an Answer (see above). Additionally, eFiling is available in Tax Lien cases and you may file online using the court’s eFiling system. For more information on using the eFiling system, see eFiling in the Land Court | Mass.gov . A copy of the Answer also must be served by mail to the other parties in the case (or their attorney(s), if they have them). If an Answer is not filed by the return date, the plaintiff can ask the court to default the taxpayer (to find that the taxpayer failed to appear) and can ask that the court to enter a Judgment of Foreclosure of the Right of Redemption. See G. L. c. 60, sec. 67 . If the taxpayer is defaulted, the taxpayer may lose the right to be heard by the court.
• Substance of Answer – In the Answer, the taxpayer can assert or claim the right to redeem (pay the redemption amount and keep) the property and/or challenge the procedure used by the plaintiff to gain or hold the tax title to the property. See attached form Tax Lien Answer. See also G. L. c. 60, secs. 68 , 70 .
• Request for Finding – If the taxpayer appears in court, the municipality or private party files a motion asking that the court enter findings regarding the amount of money the taxpayer owes. See attached sample Motion for Entry of Finding with Affidavit of Legal Fees. This amount includes the outstanding real estate taxes and/or water/sewer bills, interest, legal fees, and costs (additional expenses such as filing fees, court costs, mailing fees, and other similar costs). The taxpayer is responsible for all costs and fees. See G. L. c. 60, sec. 68 . 
• Scheduling – The taxpayer should get a copy of the Motion for Entry of Finding and notice of the hearing date. The court hears all tax lien cases on Thursdays at 10:00 AM and 2:00 PM. At an average tax session, there are fifteen to twenty matters scheduled. The notice will indicate if the hearing is being held in person at the courthouse, by telephone, or by videoconference. The court allows any party or their attorney to appear by telephone or Zoom videoconferencing. The court also can arrange for a free interpreter to assist a party at the hearing and can make reasonable accommodations for disabilities.
• Tax Lien Finding – When the court makes a Finding, it sets the “redemption amount” (the total amount of money the taxpayer needs to pay), and a deadline to pay it. See sample Tax Lien Finding. The Finding contains the amount due, costs (additional expenses), and legal fees.  Interest continues to build up on the amount due from the date of the Finding to the date of the payment, which will increase the amount of money the taxpayer needs to pay. At any time before or during the case, a taxpayer can ask the plaintiff how much is owed in total to make full payment to the plaintiff.
• The court cannot reduce the amount of taxes, interests, and costs (additional expenses). See G. L. c. 60, sec. 68 . The court also cannot hear any challenge to the assessed valuation of the property; this issue must have been addressed in a separate process called “tax abatement” over which the land court has no jurisdiction. For more information on the strict timing and procedures of the tax abatement process, see Part (IV), “Remedies,” below.
• The court has the authority to set the terms of repayment, such as establishing a payment plan. If the taxpayer makes an objection, the court can also change the amount of legal fees that the municipality or private party is asking that the taxpayer pay. See G. L. c. 60, sec. 65 . The court can change the amount of legal fees if the court finds that (1) the attorney's fees are unreasonable ( G. L. c. 60, sec. 68 ); or (2) the legal fees are not accurate as supported by an affidavit (sworn statement) from the plaintiff's lawyer; or (3) the taxpayer does not have the ability to pay the legal fees ( G. L. c. 60, sec. 65 ). The taxpayer can make arguments about the reasonableness and accuracy of the legal fees or the taxpayer’s ability to pay the legal fees at the Finding Hearing.
• The court also may consider the taxpayer’s challenge to the validity of the tax title held by the plaintiff, such as whether proper procedures were followed.
• The court may briefly continue the case (postpone it to a later date), which would give the parties more time before the court enters a Finding. If the taxpayer does not show up at the finding hearing, they may be defaulted. If the taxpayer is defaulted, the taxpayer may lose the right to be heard by the court.
• Hearing on Motion for Judgment of Foreclosure – If the taxpayer does not make full payment by the deadline in the Tax Lien Finding for making payment, the plaintiff can move for a Judgment of Foreclosure. See attached sample Motion for Entry of Judgment of Foreclosure. A hearing will be held on the motion, and these hearings are held every Thursday at 10:00 AM and 2:00 PM. See G. L. c. 60, sec. 69 . The court will issue a notice with details of the hearing, including whether it will be held in person at the courthouse, by telephone, or by videoconference. The court allows any party or their attorney to appear by telephone or Zoom videoconferencing. The court can also make reasonable accommodations for disabilities and arrange for a free interpreter to be present to assist any party.
• Process Following Judgment of Foreclosure – After the court allows a Motion for Judgment of Foreclosure and ensures that all of the relevant statutes have been complied with, a Judgment will appear on the docket (see definition above). The court sends a copy of the Judgment to the plaintiff’s attorney who files it with the registry of deeds in the county where the land is located. See attached sample Judgment in Tax Lien Case. The court also sends a copy of the Judgment to any party with an interest in the property or taxpayer who appeared in the case and was not defaulted. See attached sample Notice of Judgment of Foreclosure. Being defaulted can happen if the party stops participating in the case. 
• Judgment of Foreclosure – The Judgment of Foreclosure gives the plaintiff (municipality or private party)  full ownership of the property. See G. L. c. 60, sec. 64 . A Judgment of Foreclosure wipes out the taxpayer’s ownership, and also junior liens or claims, which include all mortgages. See attached sample Judgment in Tax Lien Case. The taxpayer may seek compensation from the plaintiff for their equity (see definition above) in the property if a judgment of foreclosure issues, even though the taxpayer no longer owns the property. Massachusetts laws do not give the Land Court jurisdiction over compensation claims.   
• Appeal of a Judgment of Foreclosure – taxpayers have 30 days after the entry of Judgment to file a notice of appeal. See Massachusetts Rules of Appellate Procedure, Rule 4(a)(1) . The notice of appeal should be filed with the Land Court within 30 days of the entry of Judgment on the docket (see definition above). 
• Judgment of Foreclosure if No Interested Party Appears – if no party with an interest has answered or appeared in court by the return date (date set by the court to answer), the plaintiff can immediately file (1) a Motion for General Default (for failure to appear) and (2) Military Affidavit. See G. L. c. 60, sec. 67 . The case is reviewed, and if appropriate, the Motion for General Default is allowed without a hearing. A Judgment of Foreclosure then enters.
• Withdrawal of the Case – where the property has been redeemed so that the taxpayer retains or keeps the property. This is further discussed in Section (5) - Redemption, below.
• Judgment of Dismissal – where the court finds that the municipality has made a significant error in assessing or attempting to collect the tax. If this happens, the Complaint to Foreclose the Right of Redemption is dismissed, and the taxpayer retains the property.
• If a foreclosure case has been filed, but the court has not yet issued a finding stating the redemption amount, the taxpayer and the plaintiff might agree on the redemption amount themselves; or, the court will have set the redemption amount at the finding hearing. Either way, if a taxpayer redeems at any time after a foreclosure case was filed but before the court enters a judgment of foreclosure, the plaintiff must file a Motion to Withdraw Complaint to Foreclose Rights of Redemption with the court so that the case can be closed. See attached sample Motion to Withdraw Complaint to Foreclose Rights of Redemption. The court then will allow this Motion and provide an attested (authenticated) copy of the Withdrawal to the plaintiff’s counsel for filing with the registry of deeds in the county where the land is located. A Certificate of Redemption from the municipal treasurer or a Deed of Release from the private party will also be issued to whoever paid the tax.
• The taxpayer should talk to the municipality or private party and make sure that the Certificate of Redemption or Deed of Release is recorded as soon as possible at the registry of deeds in the county where the land is located. Even if the taxpayer pays the municipality or private party the full redemption amount, a Motion to Withdraw must still be filed in the Land Court to end the case, and an attested (authenticated) copy of the Withdrawal and Certificate of Redemption or Deed of Release must be recorded at the registry of deeds. See attached sample Certificate of Redemption.

III. What happens after the foreclosure of the right of redemption?

• Eviction – Once the Land Court has entered the foreclosure judgment, the municipality or private party owns the property outright. The private party or municipality can start the process to evict whoever is living or running a business at the property.
• Compensation for Equity – If there is no redemption and the foreclosure proceeds to judgment, the taxpayer may seek compensation from the plaintiff for the excess value of the property (the equity) after their tax debt has been paid, even though the taxpayer no longer owns the property. Massachusetts laws do not give the Land Court jurisdiction over compensation claims .  For more information about home equity compensation, review: Land Court Statement on Tyler v. Hennepin County Minnesota . 
• Petition to Vacate up to One Year After Judgment – The taxpayer may file a Petition to Vacate the Judgment up to one year after entry of the Judgment. See G. L. c. 60, sec. 69A . The court has discretion to grant a request to vacate filed within one year of the foreclosure Judgment. The taxpayer can file the Petition to Vacate whether or not the taxpayer has paid the redemption amount (see definition above).
• Petition to Vacate Where No Sale to Innocent Purchaser for Value Occurred – A plaintiff can file a Petition to Vacate at any time as long as there has not been a sale of the property to an innocent purchaser for value. See G. L. c. 60, sec. 69 . An innocent purchaser for value is someone who paid real value or money for the property and is independent of the plaintiff. Here, a Petition to Vacate can be filed by the plaintiff even after the year has passed after entry of Judgment. This allows taxpayers to pay the plaintiff for the property even if one year has passed after the entry of Judgment, but only if the plaintiff is willing to accept payment. 
• Petition to Vacate One Year after the Entry of Judgment – After one year, the Judgment is final and can be vacated (undone) only upon a showing of lack of due process (see definition in Part I of “Foreclosure of the Right of Redemption”).
• Three documents will need to be filed with the registry of deeds in the county where the land is located if a Petition to Vacate is allowed by the court, the taxpayer has redeemed, and the plaintiff is withdrawing the case: (1) Vacation of Judgment, which is the document that undoes the Judgment (see procedure above), (2) Withdrawal, and (3) Certificate of Redemption or Deed of Release.
• After allowing a Petition to Vacate, the court will provide the party who filed the motion with an attested (authenticated) copy of the Vacation of Judgment. The party who receives the Vacation of Judgment should file it as soon as possible with the registry of deeds in the county where the land is located. (See attached sample Vacation of Judgment in Tax Lien Case and sample Withdrawal in Tax Lien Case
• If the taxpayer then redeems, the plaintiff files a Motion to Withdraw Complaint to Foreclose Rights of Redemption so that the case can be closed. See attached sample Motion to Withdraw Complaint to Foreclose Rights of Redemption. The court will then allow this motion and provide the plaintiff with an attested (authenticated) copy of the Withdrawal for filing with the registry of deeds in the county where the land is located. A Certificate of Redemption from the municipal treasurer or a Deed of Release from the private party also will be issued to whomever paid the tax. The taxpayer should talk to the municipality or private party and make sure that the Certificate of Redemption or Deed of Release is recorded as soon as possible at the registry of deeds in the county where the land is located.

IV. Remedies if unable to afford real estate taxes (available to the taxpayer before a foreclosure)

• More resources can be found through the taxpayer’s town or city assessor’s office and/or the Massachusetts Department of Revenue . The Housing Consumer Education Centers of Massachusetts also has information.
• Abatement – The taxpayer can challenge the assessed valuation of the property. Generally, the taxpayer needs to prove that the assessed value is inaccurate or unfair. Taxpayers file applications for abatement with the city or town’s assessors. There are strict rules and deadlines for applying for an abatement. The Land Court has no role in the abatement process, and cannot change a property’s assessed value. More information regarding the abatement process can be found at: Property Tax Forms and Guides  and  Real Estate Tax Appeals: A Helpful Guide for Taxpayers and Assessors . 
• Exemption – The taxpayer may be able to reduce the amount of real estate taxes based on age, disability, income, or personal status (such as veteran status). The taxpayer generally needs to show proof of eligibility. To apply for exemptions, taxpayers should contact their local assessors.
• Deferrals – The taxpayer may be able to postpone payments if they meet certain eligibility requirements that are detailed in G. L. c. 59, sec. 5 . The taxpayer should contact their local assessors to apply for deferrals.
• Repayment Programs – The taxpayer may pay the back taxes in installments before a case to foreclose the right of redemption is filed in the Land Court. The taxpayer should negotiate repayment with the city or town treasurer. Once the city or town treasurer accepts any installment payment, the time period during which a case cannot be filed is extended for up to two years beyond the usual time (6 months from the sale or taking, or at any time if the property is abandoned or if the redemption amount exceeds the assessed value of the property). G. L. c. 60, sec. 62 .
• Repayment Agreement – G. L. c. 60, sec. 62A allows for payment agreements between the treasurer and taxpayer where the city or town has enacted a bylaw or ordinance to allow for such an agreement. The taxpayer can contact the city or town treasurer to determine if a bylaw or ordinance has been enacted in a specific town. A local reference librarian may also have this information. The agreement must be for a term of five years or less and may not waive (forgive) more than 50% of the built-up interest on the tax title account. The agreement also must require a minimum payment at the start of the agreement of 25% of the amount needed to redeem.
• Reduction of Principal Owed – Municipalities may apply to the Commissioner of Revenue to reduce the principal amount owed. G. L. c. 58, sec. 8 . The taxpayer should first contact the local collector (if before a tax taking) or treasurer (if after a tax taking), to ask for a reduction of principal. The Commissioner of Revenue will only accept a request for reduction of principal if the request is from a city or town on behalf of a taxpayer.
• Tax bill – The tax bill or notice must include the last date to apply for an abatement or exemption. It must also include the last date when payment can be made without interest being due. The tax bill should also include the tax rate, the parcel of land being assessed, the assessed value, and the taxes due. It is again important to note that in most cities and town, once the account is transferred from the collector to the treasurer into a tax title account, the back taxes owed no longer appear on the taxpayer’s real estate tax bills. G. L. c. 60, secs. 3 , 3A .

V. Available resources

• Tallage Lincoln v. Williams , 485 Mass. 449 (2020) – providing detailed outline of tax foreclosure process in opinion and appendix.  
• Tyler v. Hennepin County, Minnesota , No. 22-166 (U.S. Supreme Court 2023) – confirming that taxpayers have a right to claim compensation under the Fifth Amendment of the U.S. Constitution for their equity in a property that was taken and sold in a tax foreclosure. For more information about home equity compensation, review: Land Court Statement on Tyler v. Hennepin County Minnesota .
• Land Court Recorder’s Office, Main No. (617) 788-7470
• John R. Harrington, Title Examiner, (617) 788-7480
• George A. Karambelas, Title Examiner, (617) 788- 7521
• Beema Pradhan, Sessions Clerk, (617) 788-7487, [email protected]
• Panoraia Naseli, Office Manager, (617) 788-7492, [email protected]
• Lawyers Clearinghouse – If you do not have a lawyer, you may be eligible for FREE legal advice or representation from a lawyer referred through the Tax Lien Foreclosure Legal Assistance Program. Through the program, volunteer lawyers provide free legal advice and representation to people who need, but cannot afford, legal representation. For more information, contact Sean Thekkeparayil at the Lawyers Clearinghouse: [email protected] or (617) 544-3434 ext. 110
• Northeast Legal Aid/Northeast Justice Center – Northeast Legal Aid provides free legal services to low-income and elderly people of Northeast Massachusetts. It provides these services together with its subsidiary, Northeast Justice Center. (978) 458-1465 and 800-336-2262 (toll free)
• Boston Home Center – Its mission is to help Boston residents purchase, improve, and keep their homes. (617) 635-4663
• Homeowner Options for Massachusetts Elders – Offers in-home financial counseling to low and moderate income seniors statewide. It assists with budgeting, tax breaks, mortgage counseling, and loan modification. (800) 583-5337 (toll free)
• Greater Springfield Senior Services, Inc. – Provides resources that support older adults and younger individuals with disabilities in Hampden County. (413) 781-8800 and (800) 649-3641 (toll free)
• Trial Court Law Libraries – Provides free research assistance and resources to self-represented litigants statewide.
• Greater Boston Legal Services – Provides free legal assistance and representation in civil (non-criminal) matters to needy residents in Boston and 31 surrounding cities and towns. (617) 371-1234 and (800) 323-3205 (toll free)
• City Life/Vida Urbana - A bilingual, community organization whose mission is to fight for racial, social and economic justice, and gender equality by building working class power through direct action, coalition building, education, and advocacy. (617) 934-5006
• Justice Bridge Legal Center – Provides legal services at reduced rates depending on client’s income and assets. The Center has offices in Boston and New Bedford. It provides legal consultation and advice, limited scope representation, and full legal representation in a variety of areas. (617) 860-3414
• Veterans Legal Services – Its mission is to promote self-sufficiency, stability, and financial security to homeless and low-income veterans living in Massachusetts through free and accessible legal services. (857) 317-4474

VI. Appendix of reference documents

• Newspaper Notice of Assignment
• Pre-Sale Notice of Assignment to Owners
• Instrument of Taking
• Collector’s Deed
• Instrument of Assignment of Tax Title
• Complaint (in blank and completed)
• Tax Lien Citation and Limited Assistance Representation Information Sheet
• Motion for Entry of Finding with Affidavit of Legal Fees
• Tax Lien Finding
• Motion for Entry of Judgment of Foreclosure
• Judgment in Tax Lien Case
• Notice of Judgment of Foreclosure
• Motion to Withdraw Complaint to Foreclose Rights of Redemption
• Certificate of Redemption
• Petition to Vacate Decree of Foreclosure
• Withdrawal in Tax Lien Case
• Vacation of Judgment in Tax Lien Case
• Notice of Appearance
• Notice of Withdrawal of Appearance
• Tax Lien Answer and Certificate of Service
• Tax Lien Motion and Notice of Hearing with Certificate of Service
• Military Affidavit
• Motion for General Default

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Deadline to avoid property tax foreclosure in Wayne County is April 1. What to know.

After four years, the Wayne County Treasurer's Office said it expects to resume all property tax foreclosures in 2024.

Taxpayers have until Monday to pay off delinquent property taxes, get into a payment plan or apply for an extension because of a financial hardship. Since 2020, the Treasurer's Office has had a range of moratoriums, from a halt on all tax foreclosures when the COVID-19 pandemic first began to a stop on foreclosures for owner-occupied homes last year — a move that has kept people in their homes.

"It gave people some relief and it gave them time to regroup," Wayne County Treasurer Eric Sabree told the Free Press on Tuesday.

Sabree wouldn't say how many properties are subject to foreclosure this year because the numbers fluctuate daily, he said. However, he said that in early January his office began with 37,000 parcels across Wayne County that were at risk of foreclosure and the number is working its "way down," he said. Last year, about 3,400 owner-occupied residential properties were at risk of foreclosure before a court decision halted the process . Sabree expects to remove from the foreclosure list homeowners accepted for a poverty tax exemption through the city of Detroit's Homeowners Property Exemption (HOPE ) program . He estimates that will keep more than 1,000 homes out of foreclosure.

Tax foreclosure is the process by which homeowners lose their property because they didn't pay their  property taxes for three years.  The properties are then put up for sale at  two public auctions  in  the fall .

Foreclosures were halted last year because funding was available to pay off delinquent property taxes, Sabree said. The Michigan Homeowner Assistance Fund (MIHAF) kept 6,382 taxpayers out of foreclosure by wiping away their tax debt with $27 million in aid, according to the Treasurer's Office. Now, that money is exhausted . People who are in the MIHAF pipeline, and who have not been denied, will be kept off of the foreclosure list, he said.

Sabree's office is also reviewing properties in Detroit valued under $35,000 and has identified 375 such properties. The office is looking to get those taxpayers onto payment plans and is checking to see if those homes were eligible for a poverty tax exemption. The Detroit City Council on Tuesday passed a resolution calling on Sabree to halt foreclosures on all owner-occupied homes valued under $34,700, following a push from advocates with the Coalition for Property Tax Justice.

The group recently released a study that suggests more than half of the lowest-valued homes — or those sold between $3,400 to $34,700 — in Detroit were over-assessed. The study, by the University of Chicago Harris School of Public Policy, looked at 3,452 residential property sales between April 1, 2023, and March 14, 2024. The findings are preliminary because they are based on tentative 2024 property assessments.

Sabree said the over-assessment of properties referenced in the resolution has "no bearing" on the county's foreclosure process and decision.

"It's not a valid reason to withhold properties from foreclosure," Sabree said Tuesday.

He said his office is reviewing lower valued homes that have pending foreclosures and found original tax debts that ballooned because of interest, penalties and other fees. He cited examples of relatively small tax bills that increased over time, including one that is now $198, up roughly 247% from 2016 when it was $57, and another that is $828, up 149% from 2020 when it was $333.

"We're looking to see what we can do to get these people on payment plans," he said.

Margaret Dewar, professor emerita at the University of Michigan who studies foreclosures, said it's important for people who are struggling to pay their property taxes to apply for relief programs. She said the partial moratoriums had a big impact over the past few years when paired with existing programs, including Pay As You Stay (PAYS) and the Detroit Tax Relief Fund (DTRF), which cleared tax debt .

"They've given people fresh starts," she said.

Still, she worries about what will happen to residents after foreclosures resume.

"People will lose their homes and we will again be seeing transition of people from owners to renters or doubling up with friends and family," she said.

Dewar stressed the importance of people being able to easily access the HOPE program, which can reduce or eliminate the current year's property taxes for those who are eligible.

On Tuesday, the City Council also passed a resolution calling on Deputy Chief Financial Officer and Assessor Alvin Horhn to reduce assessments, by 30%, for homes valued under $34,700.

"We need systemic change," said Bernadette Atuahene, professor at the USC Gould School of Law and executive director of the Institute for Law and Organizing, during a news conference this week.

In a statement, Horhn said the city of Detroit’s Office of Assessor, aside from mistakes of "fact or law" in specific assessments, does not have the "legal authority to reduce assessed values on residential properties outside of the two-month long appeals process which has now ended" and noted that it is confident in its assessment process.

The statement went on to say both City Council resolutions "rely upon a study that used an impermissible methodology under Michigan law that assumes location of property does not affect its value."

The city overtaxed homeowners by at least $600 million between 2010 and 2016, a 2020 Detroit News investigation found . More than 92% — of the 173,000 Detroit homes reviewed — were found to be overtaxed by an average of $3,800. Over-assessments can lead to inflated property tax bills and tax foreclosures.

How to get help

For more information about payment plans and ways to avoid foreclosure, go to bit.ly/foreclosurepaymentplans , call the Wayne County Treasurer's Office at 313-224-5990 or email [email protected].

Here is a rundown of available plans :

• Stipulated Payment Agreement (REGSPA) allows all taxpayers to make a down-payment and pay off taxes based on an agreed-upon schedule. The required down payment is now 60%.
• Interest Reduction Stipulated Payment Agreement (IRSPA) allows those who own and live in their homes to get their interest rates reduced from 18% to 6%. People can pay off taxes within five years.
• Distressed Owner Occupant Extension (DOOE) allows those who own and live in their homes, who can prove they are suffering from a financial hardship, to extend the redemption period for their property for one year. In other words, they have until March of next year to pay off tax debt or get onto another payment plan.
• Pay As You Stay Payment Agreement (PAYSPA) allows those who are low income to apply for a property tax exemption, through participating city and township tax assessors, and get a reduction on their tax bill.

Contact Nushrat Rahman: [email protected]; 313-348-7558. Follow her on X, formerly known as Twitter:  @NushratR .

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IRS kicks off annual Dirty Dozen with warning about phishing and smishing scams

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IR-2024-84, March 28, 2024

WASHINGTON — The Internal Revenue Service today kicked off the annual Dirty Dozen list with a warning for taxpayers to be aware of evolving phishing and smishing scams designed to steal sensitive taxpayer information.

With taxpayers continuing to be bombarded by email and text scams, the IRS and the Security Summit partners warned individuals and businesses to remain vigilant against these attacks. Fraudsters and identity thieves attempt to trick the recipient into clicking a suspicious link, filling out personal and financial information or downloading a malware file onto their computer.

"Scammers are relentless in their attempts to obtain sensitive financial and personal information, and impersonating the IRS remains a favorite tactic,” said IRS Commissioner Danny Werfel. “People can be anxious to get the latest information about their refund or other tax issues, so scammers frequently try using the IRS as a way to trick people. The IRS urges people to be extra cautious about unsolicited messages and avoid clicking any links in an unsolicited email or text if they are uncertain.”

Started in 2002, the IRS' annual Dirty Dozen campaign lists 12 scams and schemes that put taxpayers, businesses and the tax professional community at risk of losing money, personal information, data and more. While the Dirty Dozen is not a legal document or a formal listing of agency enforcement priorities, the education effort is designed to raise awareness and protect taxpayers and tax pros from common tax scams and schemes.

As a member of the Security Summit , the IRS has worked with state tax agencies and the nation’s tax industry for nine years to cooperatively implement a variety of internal security measures to protect taxpayers. The collaborative effort by the Summit partners also has focused on educating taxpayers about scams and fraudulent schemes throughout the year, which can lead to tax-related identity theft. Through initiatives like the Dirty Dozen and the Security Summit program, the IRS strives to protect taxpayers, businesses and the tax system from cyber criminals and deceptive activities that seek to extract information and money.

Phish or smish: Don’t take the bait

The IRS continues to see a barrage of email and text scams targeting taxpayers and others. These schemes frequently peak during tax season but they continue throughout the year. Taxpayers face a wide variety of these scams and schemes . And tax professionals, payroll providers and human resource departments remain favorite targets of email and text scams since they have sensitive personal and financial information. One common example remains the “new client” scam that can target tax pros and others.

That means taxpayers and tax professionals should be alert to fake communications posing as legitimate organizations in the tax and financial community, including the IRS and state tax agencies. These messages arrive in the form of unsolicited texts or emails to lure unsuspecting victims to provide valuable personal and financial information that can lead to identity theft. There are two main types:

• Phishing: An email sent by fraudsters claiming to come from the IRS. The email lures the victims into the scam with a variety of ruses such as enticing victims with a phony tax refund or threatening them with false legal or criminal charges for tax fraud.
• Smishing: A text or smartphone SMS message where scammers often use alarming language such as, "Your account has now been put on hold," or "Unusual Activity Report," with a bogus "Solutions" link to restore the recipient's account. Unexpected tax refunds are another potential lure for scam artists.

Never click on any unsolicited communication claiming to be the IRS as it may surreptitiously load malware. It may also be a way for malicious hackers to load ransomware that keeps the legitimate user from accessing their system and files.

In some cases, phishing emails may appear to come from a legitimate sender or organization that has had their email account credentials stolen. Setting up two-factor or multi-factor authentication with their email provider can reduce the risk of individuals having their email account compromised.

Posing as a trusted organization, friend or family member remains a common way to target individuals and tax preparers for various scams. Individuals should verify the identity of the sender by using another communication method, for instance, calling a number they independently know to be accurate, not the number provided in the email or text.

The IRS initiates most contacts through regular mail and will never initiate contact with taxpayers by email, text or social media regarding a bill or tax refund.

Individuals should never respond to tax-related phishing or smishing or click on the URL link. Instead, report all unsolicited email - including the full email headers - claiming to be from the IRS or an IRS-related function to [email protected] . If someone experienced any monetary losses due to an IRS-related scam incident, they should report it to the Treasury Inspector General for Tax Administration (TIGTA) , the Federal Trade Commission and the Internet Crime Complaint Center (IC3) .

If a taxpayer receives an email claiming to be from the IRS that contains a request for personal information, taxes associated with a large investment, inheritance or lottery.

• Don't reply.
• Don't open any attachments. They can contain malicious code that may infect the computer or mobile phone.
• Don't click on any links. If a taxpayer inadvertently clicked on links in a suspicious email or website and entered confidential information, visit the IRS’ identity protection page.
• Send the full email headers or forward the email as-is to [email protected] . Don't forward screenshots or scanned images of emails because this removes valuable information.
• Delete the original email.

If a taxpayer receives a text claiming to be from the IRS that contains a request for personal information, taxes associated with a large investment, inheritance or lottery.

• Don't click on any links. If a taxpayer clicked on links in a suspicious SMS and entered confidential information, they should visit Identity Theft Central .
• Report the message to 7726 (SPAM).
• Include both the Caller ID and the message body in an email and send to [email protected] . Copy the Caller ID from the message by pressing and holding on the body of the text message, then select Copy, paste into the email. If the taxpayer is unable to copy the Caller ID or message body, forward a screenshot of the message.
• Delete the original text.
• For more information see the IRS video on fake IRS-related text messages .

The Report phishing and online scams page at IRS.gov provides complete details. The Federal Communications Commission's Smartphone Security Checker is a useful tool against mobile security threats.

Report fraud

As part of the Dirty Dozen awareness effort regarding tax schemes and unscrupulous tax return preparers, the IRS urges individuals to report those who promote abusive tax practices and tax preparers who intentionally file incorrect returns.

To report an abusive tax scheme or a tax return preparer, people should use the online Form 14242 – Report Suspected Abusive Tax Promotions or Preparers , or mail or fax a completed  Form 14242 PDF  and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations.

Internal Revenue Service Lead Development Center Stop MS5040 24000 Avila Road Laguna Niguel, California 92677 3405 Fax: 877-477-9135

Taxpayers and tax professionals can also submit this information to the IRS Whistleblower Office , where they may be eligible for a monetary award. For details, refer to the sections on Abusive tax schemes and abusive tax return preparers .

More information:

• Reporting phishing and online scams
• Here's how to avoid IRS text message scams
• Identity Theft Central
• Federal Communications Commission's Smartphone Security Checker
• Federal Trade Commission: How to recognize and report spam text messages
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B2B: Rearming the Tax Authorities

Dzhangar Dzhalchinov Partner, Head of Russian Tax Practice Dentons

The Russian Supreme Arbitration Court website recently published statistics on tax disputes considered in the commercial courts. The RF SAC figures show that in 2012 some 24,554 cases were considered in which taxpayers challenged non-regulatory acts of the tax authorities or acts/omissions by officials. A comparison with previous years shows that after a significant fall in the number of tax disputes in 2010 and 2011 (35,368 cases in 2009, 31,415 in 2010, 26,358 in 2011), the situation has stabilized. At the same time, the percentage of cases won by the taxpayer has remained at around the same level over the last 4 years (2009 — 66.3 percent, 2010 — 64 percent, 2011 — 62.8 percent, 2012 — 61.8 percent).

While previously a significant reduction in tax dispute numbers was achieved by a number of different factors, including reducing the number of tax audits, we have now reached the minimum level, from which no further drops are possible. For example, field audits are covering only a tiny number of legal entities. In 2011, there were 51,600 audits, and in 2012 — 45,000. Granted, the resulting additional assessments have been growing — in 2011 the tax authorities made additional assessments of 271 billion rubles in taxes, late payment interest, and fines, and in 2012 — 300 billion rubles.

The Federal Tax Service has no intention of resting on its laurels, and according to the Concept for Development of Pretrial Settlements in Tax Disputes in the Russian System of Tax Authorities in 2013-2018, the next target is a general move from court settlement of tax disputes to pretrial settlement. To this end, a draft law has been submitted to the State Duma that will make a pre-trial complaint procedure mandatory for all non-regulatory acts and acts/omissions of the tax authorities, not just decisions based on tax audits.

In my view, however, at this time there is greater potential in the way in which the tax authorities approach the settlement of tax disputes than in any technical manipulations.

The tax authorities are continuing to use a blunt instrument approach to some issues, though the scalpel was invented long ago.

On the one hand, the era of repeat assessments has ended. The tax authorities have begun listening to enforcement practice. We can only thank the tax authorities for doing so.

On the other hand, the tax authorities are continuing to use a blunt instrument approach to some issues, though the scalpel was invented a long time ago. A blunt instrument approach can be justified, for example, where the tax authorities are only beginning to study an issue. For example, several years ago, serious claims against banks were an exception to the rule. However, in the last year there have been a number of prominent tax cases involving banks: Commerzbank, Rosbank, Natixis, Credit Europa Bank, UniCredit Bank, International Industrial Bank, etc. The last big case involving a bank was without a doubt the case of National Bank Trust. This case has so far been heard on two occasions, and both times the ruling was in favor of the tax authority. The case concerns six episodes, each outdoing the previous one: securitization, assignment of receivables to a related Cyprus company, repo transactions, acceptance of shares in place of membership contributions, treating delivery transactions as settlement transactions, treatment of overpayments material to calculation of late payment interest for unpaid taxes.

But if you have a scalpel, why use an axe? Thankfully, in most cases the courts set the tax authorities on the right path. However, there are also cases where the courts accept the blunt instrument as the correct approach. This can be infuriating and raises the question of why the state is trying to make changes. Just for show?

Cases concerning intragroup services are a clear example, with the tax authorities using pricing claims to dispute whether a service was genuine and/or the absence of documented expenses. These would appear to be unrelated issues. Moreover, there is a whole chapter of the Tax Code on transfer pricing — use the scalpel! Or, as in the case of Cargill Yug, the tax authority decide that the company had created fictitious documentation intended to evade taxes, and the courts agreed. But what evasion can there be if the contractor under the service agreement is a Russian taxpayer that paid all taxes? Most likely, it was evading paying taxes in Krasnodar Krai by paying in Moscow. The responsible officials should probably get an award for coming up with that kind of claim.

Yet, who said rearming would happen without incident?

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