William Kunofsky

William Kunofsky

Wednesday, June 22, 2011

The Difference Between Federal Tax Liens and Notice of Federal Tax Lien

Most taxpayers owing back taxes worry that the IRS will file a Notice of Federal Tax Lien. They know that it is a public record and will damage their credit. However, the filing of the Notice of Federal Tax Lien is just the tip of the iceberg. The lien is a property right of the U.S. government against the property of the taxpayer. The lien begins soon after the tax debt is assessed. The IRS demands payment and lo and behold, the lien is in effect. However, the lien has not been filed. The distinction is important. A properly filed Notice of Federal Tax Lien is notice to all creditors of the claim of the IRS. The tax lien that is not filed is not superior to later secured debts and is not notice of the lien. Creditors are in a line to get paid. Usually the earlier filed lien is paid earlier if property is liquidated. A lien is inferior if filed after the Notice of Federal Tax Lien and can be wiped out by foreclosure of a higher lien. The proceeds from sale of property of the taxpayer after the lien is filed pays off the superior liens that attach to the property sold and then the tax lien. The filing of a bankruptcy does not release the tax lien from the debtor's property. The lien can be foreclosed by seizure of property of the taxpayer or by judgment.  The lien is far reaching and even affects the purchaser of the taxpayer's property that secures the lien. The lien survives if the tax is not paid at closing. The later sale by the purchaser will have the proceeds of sale reduced by the lien. The IRS can seize the purchased property. The lien has attached to the property sold and travels with the property until the debt is paid and the lien released. The lien is superior to state property exemptions. This info can be easily understood by just reading the Internal Revenue Code, Federal Income Tax Regulations, opinions of the U.S. Tax Court, opinions of the U.S. Bankruptcy Courts, opinions of the different Circuit Courts of Appeals, the United States Supreme Court, and thousands of scholarly articles and writings. Alternatively, you just were given a small taste of the info on this exciting topic. Yawn!  I think I just put myself to sleep.

1 comment:

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