8.7 Parties Defeating the Unfiled Federal Tax Lien

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

8.7 PARTIES DEFEATING THE UNFILED FEDERAL TAX LIEN

8.701 In General. I.R.C. § 6323(a) requires that a notice of federal tax lien be filed for the lien to defeat purchasers, holders of security interests, mechanics' lienors, and judgment lien creditors. This requirement applies even when the competing lienholder has actual notice of the existence of the unfiled federal tax lien. The competition between the federal tax lien and the four types of interests described in this paragraph is a matter of timing. If the party attempting to defeat the tax lien meets the definition of one of these four interests before the IRS properly files the notice of federal tax lien, the party is protected even though his or her interest in the property has come into existence after the attachment of the unfiled federal tax lien on the

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property in question. If, however, the federal tax lien is filed first, it defeats the competing interests.

8.702 Purchasers. "Purchaser" is defined in I.R.C. § 6323(h)(6). To qualify as a purchaser, a party must give full or adequate consideration for the property. The consideration essentially needs to meet the arm's length transaction price to fulfill this requirement. Consideration such as love and affection will not satisfy this test: it must be in money or money's worth. The consideration must be given to acquire an interest other than a lien or security interest, and the purchaser must be protected under local law against subsequent purchasers without actual notice. If the purchaser must file or record the transaction under local law to perfect the purchase, the purchaser is not protected until the filing or recording is accomplished. Possession of the property, however, may be sufficient under local law for certain types of property.

8.703 Mechanics' Lienors. Mechanics' liens are defined in I.R.C. § 6323(h)(2). To be a valid lien, a mechanic's lien must be provided for by local law, be attached to real property (or on the proceeds or a contract relating to real property), and be for labor or materials furnished in connection with construction or improvements. 57 The statute allows the lien to relate back to the date the mechanic's work began; however, it cannot relate back to a date before the work began even if state law would allow it to do so. The lien must be perfected under local law against a subsequent purchaser. 58 This priority is given on the theory that the labor and materials generally add value to the property, and...

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