8.13 Proceedings to Remove a Federal Tax Lien
Library | Enforcement of Liens and Judgments in Virginia (Virginia CLE) (2019 Ed.) |
8.13 PROCEEDINGS TO REMOVE A FEDERAL TAX LIEN
8.1301 In General. If a taxpayer or a third party is not able to convince the IRS that any of the provisions of I.R.C. § 6325 apply, additional opportunities exist to challenge the federal tax lien. Those opportunities differ depending upon who is bringing the challenge. This discussion will examine the difference between challenges brought by the taxpayer and those brought by others.
8.1302 Collection Due Process. I.R.C. § 6320 provides an additional remedy to challenge the federal tax lien that is commonly known as "collection due process" (CDP). This remedy allows a taxpayer to contend before the IRS that the filing of the federal tax lien is not the best way to collect the outstanding taxes and to explain how the taxes can best be collected through other means. If the IRS does not agree, the taxpayer has the right to continue the challenge in the courts.
When the IRS files a notice of federal tax lien, it must send to the taxpayer written notification that it has filed the lien and give the taxpayer an opportunity to have a CDP hearing to discuss the filing of the lien. The written notification must be sent to the taxpayer's last known address within five business days after the filing of the lien. The notification is given by sending Form Letter 3172, "Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320." The required notice is not valid unless it is given in person, left at the taxpayer's dwelling, or delivered to the last known address by certified mail. 115
The taxpayer is permitted one hearing per tax period. Therefore, if the IRS files multiple liens for one period, it is only the first notice of federal tax lien that will trigger the taxpayer's opportunity for a CDP hearing for that period. Once the taxpayer receives the Form Letter 3172, the taxpayer must submit to the IRS a written request for a CDP hearing. The request must be submitted no later than 30 days after expiration of the five business days
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beginning on the date the notice of federal tax lien was filed. 116 If the taxpayer fails to make a timely request, the right to a CDP hearing, as well as the opportunity to subsequently pursue the matter in court, is lost. However, the taxpayer can still obtain an equivalent hearing with the IRS. The equivalent hearing essentially provides the same administrative remedy but without the ability to challenge an adverse IRS ruling in court. 117
When a taxpayer requests a CDP hearing, the statute of limitations on collection is suspended for the period of the hearing and any related court proceeding. The request also essentially stops IRS collection action with respect to the outstanding liability. The CDP hearing will occur before an "impartial" appeals officer—one who does not have previous experience with that taxpayer. The appeals officer will take the following steps to decide whether the notice of federal tax lien should be removed:
1. | Verify that all procedural requirements have been met by the IRS; | |
2. | Consider any appropriate spousal defenses raised by the taxpayer, such as an innocent spouse defense; | |
3. | Consider challenges to the appropriateness of the filing of the lien, such as whether the taxes are actually due or whether they were discharged by bankruptcy or otherwise satisfied; | |
4. | Consider collection alternatives that might provide sufficient protection to the IRS but be less onerous for the taxpayer, such as installment agreements, offers in compromise, or substitution of proceeds; and | |
5. | Consider challenges to the underlying tax liability in circumstances in which the taxpayer did not previously have the opportunity to do so. 118 |
The hearing could conclude with (i) the taxpayer and the appeals officer reaching an agreement on a collection alternative, (ii) the appeals officer determining that the lien was inappropriate because of a procedural irregularity, or (iii) the appeals officer determining that the filing of the lien
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was appropriate. If the lien is found to be appropriate and the taxpayer does not agree with that determination, the taxpayer will receive a determination letter and have 30 days to appeal to the Tax Court. The standard of review used by the court depends on the matter being reviewed: if the matter concerns the appropriateness of the collection action, the standard is abuse of discretion.
8.1303 Judicial Sales.If a federal tax lien encumbers a particular property, the person seeking to sell that property may join the United States as a party in certain civil actions or suits in state or federal court to determine the extent and validity of the federal tax lien. Sovereign immunity has been waived to allow such a proceeding to be brought against the United States. 119 These procedures allow...
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