8.12 Requesting Irs to Remove a Federal Tax Lien

LibraryEnforcement of Liens and Judgments in Virginia (Virginia CLE) (2019 Ed.)

8.12 REQUESTING IRS TO REMOVE A FEDERAL TAX LIEN

8.1201 In General. The various means of eliminating or limitingled federal tax lien provide their own rules that must be learned in order to understand the full effect of filing the lien. The statutory provisions for this study are found in I.R.C. § 6325. Five terms are important to the discussion: release, withdrawal, discharge, subordination, and cert the fiificate of nonattachment. Each will be discussed in turn below. To understanding how and when the lien will be released, it is important first to consider the statute of limitations on collection.

8.1202 Statute of Limitations. The federal tax liability created by assessment lasts for 10 years from the date of assessment. 95 If the IRS does not collect the liability within the 10-year period, it may no longer do so unless some act or event has extended the statute of limitations. Before the Revenue Reform Act of 1998, the IRS and the taxpayer had an almost unfettered ability to extend the statute of limitations on collection by agreement. The Act significantly curtailed that ability. The limitation period may now be extended by agreement only in the case of installment agreements. 96

The statute of limitations on collection can be suspended by certain acts. 97 One common action suspending the statute is the filing of a bankruptcy petition. When a taxpayer files bankruptcy, the filing suspends the statute of limitations on collection for the period of time the IRS is

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prohibited from taking collection action by reason of the bankruptcy case, and for an additional six months. 98 Requesting a collection due process hearing, an offer in compromise or an installment agreement are other common actions that suspend the statute of limitations on collection. 99 Any action that prevents the IRS from using its levy power will generally suspend the statute of limitations.

Once the statute of limitations has expired, the IRS must release any filed federal tax liens. 100

8.1203 Release. A certificate of release extinguishes the federal tax lien. 101 Once the tax liability giving rise to the federal tax lien is fully satisfied or becomes legally unenforceable, the IRS must issue a certificate of release within 30 days. If the notice of lien secures more than one assessment, however, all assessments secured by the lien notice must be satisfied before a certificate of release will be issued, unless the taxpayer requests a certificate of release for the specific periods that have been satisfied or expired. 102

The IRS notice of federal tax lien itself operates as a certificate of release upon the expiration of the statute of limitations. This self-releasing feature is activated when the "normal" statute of limitations expires. If something has extended the statute of limitations, the IRS must refile the lien or it will self-release. When a taxpayer owns property in multiple locations, the IRS will sometimes file the notice of federal tax lien in numerous jurisdictions. The IRS must be careful in those circumstances to refile its liens in each jurisdiction in which a lien was originally filed. The release of a lien in one jurisdiction operates as a release in all jurisdictions.

8.1204 Withdrawal. I.R.C. § 6323(j) provides the IRS with the flexibility to withdraw the filed federal tax lien in certain circumstances. 103 Although withdrawing the lien deprives the IRS of the advantages that a filed lien confers against competing creditors such as those under section 6323(a), it is possible for such a withdrawal to benefit both the taxpayer and

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the IRS. The statute sets out four circumstances in which the IRS can withdraw the...

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