8.5 Filing of the Federal Tax Lien

• Library: Enforcement of Liens and Judgments in Virginia (Virginia CLE) (2019 Ed.)

8.5 FILING OF THE FEDERAL TAX LIEN

As previously mentioned, the federal tax lien arises after assessment, notice and demand, and failure to pay, at which point no one except the IRS and the taxpayer knows that the lien exists. To protect parties dealing with the taxpayer from entering into a transaction without knowledge of the lien, and to make the lien effective against certain parties, the IRS must file the notice of federal tax lien. The protected parties are discussed below.

The IRS must comply with the statutory filing requirements for the notice of lien to become effective. Only an effectively filed notice of lien perfects the federal tax lien. The filing publicizes the lien and places everyone on notice of its existence. Generally, publicizing the lien severely curtails the availability of credit but has no effect on the taxpayer's ability to use the property subject to the lien except for limiting its use as collateral.

Discretion to file the notice of federal tax lien resides with the IRS collection officers. The notice is usually filed when these officers determine that the lien is necessary to properly protect the government's interest in the

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taxpayer's property. ³⁸ The taxpayer has the opportunity to contest the filing of the notice of federal tax lien and to argue to the IRS and the court that a collection alternative other than the filing of the lien would best allow the IRS to collect the outstanding tax. ³⁹ For example, the taxpayer might argue that the lien is hampering his or her ability to obtain credit and that if credit were obtained the taxpayer could earn more money and pay the liability faster.

The notice of federal tax lien is filed in specific locations that are determined by a combination of state and federal law. ⁴⁰ For real property, the notice is filed in the locality where the real property is physically located. ⁴¹ For example, if the IRS seeks to perfect its lien against Blackacre, real property of the delinquent taxpayer located in Henrico County, it must file the notice of federal tax lien in Henrico County. The lien against personal property may have to be filed in a different location from the real property. With respect to perfection of the lien against personal property of individuals, the notice must be filed in the location designated by the state as the taxpayer's place of residence at the time the notice is filed. ⁴² For example, if the taxpayer resides in the city of Richmond, the notice must be filed in the...