IRS Tax Lien Withdrawal and Removal

As you are probably aware by now, the IRS does not mess around when it comes to unpaid taxes, money owed, and potentially fraudulent tax returns. In fact, the IRS does not pull any punches, period. If you want an easy and straightforward life, it pays to stay on the IRS’ good side. This is where it pays to have a tax lawyer or attorney-in-fact tax professional, enrolled agent or CPA in your corner. Say for example, you fail to pay your taxes to the IRS for whatever reason, you could find yourself experiencing a tax lien. It doesn’t matter whether you genuinely didn’t intend to pay, or if it was an honest mistake, the IRS will get their money one way or another. But what exactly is a tax lien removal or withdrawal from public records, how does a tax lien affect you and/or your business, and is there anything you can do? All will soon become clear.

What is a Tax Lien?

A tax lien is a public notice/document filed in the county recorder’s office by the IRS that will inform lenders and/or creditors that the government has placed a tax lien onto your existing property. Tax lien public record can damage your credit rating and can place personal and/or business assets into jeopardy. Tax liens are no joke, unless they are part of a settlement agreement. In fact, they are comparable to bankruptcy in business circles. A tax lien could potentially leave you losing everything if you aren’t careful, including your business. The IRS issued 470,602 tax liens in 2016 and 446,378 in 2017, and the last thing you want is to be the recipient of one yourself. After receiving a demand for payment from the IRS, you will have 10 days to respond. By respond, we basically mean pay. You either pay in full what you owe, or contact the IRS and setup some form of payment plan. Fail to do so, and the IRS will file a Notice of Federal Tax Lien.

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Why is a Tax Lien so Damaging?

After receiving a tax lien notice from the IRS, creditors, lenders, and even credit reporting agencies will be informed that you have a tax lien placed upon your assets. Basically, this lien is the IRS’ claim to your property, and it legally entitles them to seize property and assets until your tax debt, and any additional interest payments, have been paid off in full. As well as losing property and business assets, a tax lien public record can also negatively impact your credit rating until you remove it or get it withdrawn. This can make it much harder for you to be approved for loans and other lines of credit, unless you get a subordination. Needless to say, this would make life very difficult for even the smallest of businesses with low overheads and costs, so you can imagine how larger-scale businesses will suffer.

How to Take Care of a Tax Lien

Thankfully it is rare that the government will seize property and assets. They do not want you see businesses be destroyed, nor do they want the hassle. They are willing to negotiate payment plans and settlement schemes. An IRS tax lien withdrawal for example, will remove the tax lien by using form 12277. This means that the IRS is no longer in competition with other creditors for your assets/property. A tax lawyer, attorney-in-fact tax professional, enrolled agent or CPA will advise you and initiate the tax lien removal and withdrawal process.

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IRS Tax Lien, Removal, Withdrawal, Release Case Law and Authority

In a recent Seeley case (DC MA 11/8/2018) 122 AFTR 2d ¶ 2018-5415, state bankruptcy homestead exemption did not prevent lien enforcement, IRC Sec. 6321 imposes a lien on all property and property rights of a taxpayer liable for taxes after a demand for the payment of the taxes has been made and the taxpayer fails to pay those taxes. The lien arises at the time assessment is made and continues until the liability is satisfied or becomes unenforceable by lapse of time. (Code Sec. 6322). IRS assessed taxes and penalties with respect to the taxpayers, Mr. and Mrs. Seeley. Notices of Federal Tax Liens against the Seeley’s were recorded by IRS with the relevant Massachusetts county, with respect to property (the Property) in that county. The Seeley’s then filed for relief under Chapter 7 of the Bankruptcy code. The Bankruptcy Court granted an Order of Discharge. Section 522 of the Massachusetts Bankruptcy Code allows a debtor to exempt certain property from the bankruptcy estate. In Massachusetts, a debtor may elect either the exemptions provided under federal law or the state law exemptions. In connection with their bankruptcy, the Seeley’s chose the state exemption scheme and claimed a $500,000 homestead. This homestead declaration allowed the Seeley’s to exempt up to $500,000 of value from certain creditor liens and enforcement actions. IRS commenced the current action to enforce the federal tax liens via a sale of the Property. It joined as defendants the Town of Topsfield, Massachusetts and the Massachusetts Department of Revenue because they had, or could claim, an interest in the Property. The court held that the Massachusetts bankruptcy code homestead exemption had no effect on the enforceability of the federal tax liens. The court here noted that the U.S. Supreme Court has held that when a state-created exemption, such as a homestead, conflicts with federal law, the exemption does not immunize a property from federal tax liens, pursuant to the Supremacy Clause. (Rodgers, (S Ct 1983) 52 AFTR 2d 83-5042). "Exempt status under state law does not bind the federal collector." (Craft, (S Ct 2002) 89 AFTR 2d 2002-2005) Thus, the court said, the Seeley’s homestead did not prevent IRS from enforcing the liens on the Property through foreclosure.

Suspension of statute of limitation, in the case of Gilliam, (CA 4 6/25/2018) 121 AFTR 2d 2018-901, The Court of Appeals for the Fourth Circuit, affirming a district court decision, has held that the collection of funds pursuant to a levy is unrelated to the question of whether the statute of limitations (SOL) period is suspended while a taxpayer's lien hearing request is pending. The Court has also ruled on the SOL effects of a court deciding that a seemingly late filed request for a collection due process (CDP) hearing was actually timely. Typically, IRS has ten years after making an assessment to collect through levy or judicial proceeding. (Code Sec. 6502(a)(1))

The statute of limitations for collection is suspended:

When "the Secretary is prohibited from making the assessment or from collecting by levy or a proceeding in court", (Code Sec. 6503(a)(1)); If IRS gives notice of intent to levy and the taxpayer requests a hearing to challenge the levy actions (Code Sec. 6330(e)(1)); or If IRS institutes a lien and the taxpayer requests a hearing to challenge the lien. (Code Sec. 6320(c)) Once a taxpayer requests a hearing to challenge a levy or lien, the taxpayer must be afforded one of two types of hearings. The first, the CDP hearing mentioned above, is available only if the taxpayer's request for a hearing is timely. (Reg. § 301.6320-1(b)(1)) If the request is untimely, the taxpayer receives an equivalent hearing rather than a CDP hearing. (Reg. § 301.6320-1(b)(1); Reg. § 301.6320-1(c)(2)) The Code does not distinguish between CDP and equivalent hearings; the two-track hearing system originates entirely in the regs. Taxpayers are afforded the same procedures during CDP appeal and equivalent hearings, with two exceptions. First, a decision letter issued at the conclusion of an equivalent hearing cannot be appealed, whereas a notice of determination issued following a CDP hearing is appealable. (Reg. § 301.6320-1(i)(1), Reg. § 301.6320-1(i)(2)) Second, the limitations period is not suspended during the pendency of an equivalent hearing, whereas a CDP hearing request suspends the limitations period. Code Sec. 7433 waives the U.S.'s sovereign immunity and awards damages to taxpayers in certain circumstances. Specifically, the statute grants that waiver to any taxpayer if an IRS officer negligently, recklessly, or intentionally disregards any provision of the Code or regs promulgated under the Code. Although lien and levy actions are similar, they are legally distinct. This distinction is evidenced by the fact that liens and levies are controlled by separate portions of the Tax Code and regs. Accordingly, although Code Sec. 6503(g) suspends the limitations period when IRS is prohibited from collecting "by levy or a proceeding in court", the issue here wasn't collection by levy. Thus, Code Sec. 6503 did not require suspension of the limitations period between 2007 and 2010. Indeed, the Court said, Code Sec. 6503 was wholly irrelevant to its analysis of whether the limitations period was suspended during that time period. Instead, the Court said, the relevant statutory provision was Code Sec. 6320 and its incorporation of Code Sec. 6330. Code Sec. 6320 provides that a taxpayer has a "right to fair hearing" if "the person requests a hearing in writing under subsection (a)(3)(B) and states the grounds for the requested hearing". Code Sec. 6320 also incorporates the portions of Code Sec. 6330 dealing with suspension of the limitations period. Specifically, it incorporates the language that "if a hearing is requested... the running of any period of limitations... shall be suspended...". (Code Sec. 6330(e)(1)) The Court then tried to answer the question of when exactly the suspension of the limitations period began in this case. it said that neither Code Sec. 6330 nor Code Sec. 6320 specify the precise time at which the suspension of the limitations period begins following a hearing request. Moreover, the Court said, even assuming that allowing the regs to control would be a retroactive conversion of his equivalent proceeding into a CDP hearing and a retroactive suspension of the limitations period, Gilliam's contention that such a suspension would violate Code Sec. 6503 and Code Sec. 6330 was unfounded. Those Code sections are silent as to whether a hearing request must be timely. The regs raise the issue of timeliness and use timeliness to distinguish between CDP and equivalent hearings without reference to when that timeliness determination must be made. Accordingly, the Court said, it must hold that the plain language of the regs, which state that so long as a hearing request is timely, "[t]he suspension period commences on the date IRS receives the taxpayer's written request for a CDP hearing", should control. (Reg. § 301.6320-1(g)(2)) It makes no difference that Gilliam's hearing request was initially considered untimely; it only matters that the final decision of the Tax Court was that his request was timely. Thus, the limitations period was suspended between December 2007 and September 2010, and IRS's collection action was timely.

In the Longino case, TC Memo 2018-175

The Tax Court has upheld IRS's determination to sustain a proposed collection action via lien. Among the arguments rejected by the Court was the taxpayer's argument that IRS, by cashing a check that he had enclosed with a letter stating that the check should be returned if it didn't fully conclude all issues with respect to his tax return, had settled his liability. Code Sec. 6320(a) requires IRS to give a taxpayer written notice when IRS intends to put a lien on the taxpayer's property. The notice must inform the taxpayer of the right to request an administrative Collection Due Process (CDP) hearing in the IRS Office of Appeals (Appeals). Appeals is responsible for conducting administrative hearings in collection matters. (Code Sec. 6320(b)) Appeals must verify that the requirements of any applicable law or administrative procedure have been met in processing the case. (Code Sec. 6320(c), Code Sec. 6330(c)(1), Code Sec. 6330(c)(3)(A)) The Appeals Office must also consider any issues raised by the person that relate to the unpaid tax or proposed levy, including offers of collection alternatives, appropriate spousal defense, and challenges to the appropriateness of the collection action. (Code Sec. 6320(c), Code Sec. 6330(c)(2)(A), Code Sec. 6330(c)(3)(B)) At a CDP hearing, a person may challenge the existence or amount of his or her underlying tax liability if the person did not receive a notice of deficiency or did not otherwise have an opportunity to dispute such tax liability. However, a taxpayer is otherwise precluded from contesting the existence or amount of the underlying tax liability at the hearing. (Code Sec. 6330(c)(2)(B)) Appeals must also consider whether the collection action balances the need for efficient collection against the person's concern that collection be no more intrusive than necessary. (Code Sec. 6330(c)(3)(C)) A taxpayer who is dissatisfied with the findings or conclusions of the CDP hearing can appeal the determination to the Tax Court. (Code Sec. 6330(d)(1)) When the Tax Court receives an appeal from a CDP hearing, however, its review is limited to issues that were properly raised during the CDP hearing. Where the taxpayer's underlying liability is not properly at issue, the Tax Court reviews IRS's decision for abuse of discretion only. (Goza, (2000) 114 TC 176) IRS timely assessed the deficiency. When Longino did not pay that liability on notice and demand, IRS filed a Notice of Federal Tax Lien (NFTL) in an effort to collect his liability. He timely requested a CDP hearing, which was held with an IRS settlement officer (SO). Further, the Court noted that even if the IRS employee were thought to have made a settlement offer, no settlement of any kind is binding on IRS unless it is duly authorized and properly memorialized, e.g., in a closing agreement under Code Sec. 7121. Longino supplied no reason to believe that his IRS correspondent had the requisite settlement authority.

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