8.11 Future Advances
Library | Enforcement of Liens and Judgments in Virginia (Virginia CLE) (2019 Ed.) |
8.11 FUTURE ADVANCES
Commercial necessity requires that a balance be struck between the desire for a free flow of credit and the need to collect unpaid taxes. Congress addressed this need by creating limited exceptions from the priority of the federal tax lien for certain security interests and future advances. These exceptions are detailed in I.R.C. § 6323(c) and (d).
Lending institutions and other third parties regularly enter into agreements with taxpayers by which they commit to loan money at a future time or based on a line of credit. If a notice of federal tax lien were filed after the commitment was made but before the money was loaned and it defeated the subsequent advance, no lenders would enter into such an arrangement and commerce would be impeded. Conversely, if it were possible to enter into an agreement for future advances that would defeat the filed federal tax lien for an indefinite time into the future, borrowing strategies could be devised that would make federal tax collection difficult. To address these problems, Congress created a limited superpriority for certain future advances to protect lenders for a short while but not allow them to defeat the filed federal tax lien over a long period. 86
Under I.R.C. § 6323(c), a security interest will continue to defeat the federal tax lien even after it is filed if certain conditions are met. First, the security interest must be in qualified property. It must be covered by a written agreement that was in existence before the notice of federal tax lien was filed, and the written agreement must constitute a commercial transaction financing agreement, a real property construction or improvement financing agreement, or an obligatory disbursement agreement.
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The agreement must be protected under local law against a judgment lien arising as of the time of the filing of the notice of federal tax lien.
The term "commercial transactions financing agreement" is defined in I.R.C. § 6323(c)(2) as an agreement entered into by a person in the ordinary course of his or her trade or business (i) to make loans to the taxpayer that are secured by a commercial financing security acquired in the ordinary course of trade or business, or (ii) to purchase commercial financing security (except inventory) acquired by the taxpayer in the ordinary course of trade or business. The loan or purchase must be made before the 46th day after the date of the filing of the notice of federal tax lien or before the...
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- 8.1 Introduction
- 8.2 The Federal Insolvency Statute
- 8.3 The Federal Tax Lien
- 8.4 Property to Which the Federal Tax Lien Attaches
- 8.5 Filing of the Federal Tax Lien
- 8.6 Priority of the Federal Tax Lien
- 8.7 Parties Defeating the Unfiled Federal Tax Lien
- 8.8 Parties Defeating the Filed Federal Tax Lien
- 8.9 Purchase Money Security Interests
- 8.10 State Tax Liens
- 8.11 Future Advances
- 8.12 Requesting Irs to Remove a Federal Tax Lien
- 8.13 Proceedings to Remove a Federal Tax Lien
- 8.14 Estate and Gift Tax Liens
- Appendix 8-1 Notice of Federal Tax Lien
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