8.8 Parties Defeating the Filed Federal Tax Lien

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

8.8 PARTIES DEFEATING THE FILED FEDERAL TAX LIEN

8.801 In General. In the Federal Tax Lien Act of 1966, Congress recognized that certain interests need to defeat even the filed federal tax lien if commerce is to flow smoothly. Certainly we would not want to go to the courthouse every time someone gave us cash or every time we visited a retail establishment to verify that the cash or the merchandise was not encumbered by a federal tax lien. It makes sense in certain situations, even where a federal tax lien has been filed and made public, to allow property to pass without fear of its continued attachment. I.R.C. § 6323(b) sets forth 10 circumstances, discussed in the following paragraphs, that justify this treatment. They all exist for essentially the same reason—to allow the free flow of commerce. However, these circumstances have given rise to slightly

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different rules concerning whether it matters if the person competing with the federal tax lien was aware of its existence.

8.802 Securities. Securities for this purpose are defined in I.R.C. § 6323(h)(4) to include a broad array of financial instruments, such as cash, bonds, negotiable instruments, and certificates of indebtedness. Actual notice is not a factor where securities are bought and sold in the customary market but could be a factor if a broker sold securities from a personal portfolio to someone with actual notice.

8.803 Motor Vehicles. Motor vehicles are defined in I.R.C. § 6323(h)(3) as self-propelled vehicles registered for highway use under the laws of any state or foreign country. The party protected from the federal tax lien must purchase and retain possession of the vehicle before receiving actual notice of the lien. This protection reflects the need to assure consumers that they can rely on certificates of title.

Unlike a purchaser, a lender on the security of a motor vehicle is not protected by this provision. 70 The IRS will not file its notice of federal tax lien with any state department of motor vehicles. In Virginia, the lender should search for federal tax liens in the circuit court clerk's office at the place of residence of the borrower. 71

8.804 Personal Property Purchased at Retail. Tangible personal property purchased at retail (not wholesale) that is sold in the ordinary course of the seller's trade or business is protected by I.R.C. § 6323(b). In this setting, the purchaser is protected even if he or she has personal knowledge unless the purchaser knows that...

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