When Can the IRS and/or State of California File Tax Liens

26 U.S. Code 6325

Grammy Award winning rapper, actor and reality television star T.I. (aka TIP and Clifford Harris) is worth an estimated $215 million, but around $4.5 million of that apparently belongs to the IRS. In August of 2015, a little over year after the release of his gold single “About the Money,” the IRS filed tax liens on T.I.’s properties (including his Georgia mansion and Ferrari) to satisfy unpaid 2012 and 2013 taxes.

An introduction to tax liens

A tax lien is a legal claim on a taxpayer’s current and future property (including his or her real estate, personal property, business assets, social security benefits, bank accounts, wages and other income) in order to secure the payment of a tax debt. The federal government may impose a tax lien only after:

  1. The IRS assesses a tax debt
  2. The IRS sends a Notice and Demand for Payment to the taxpayer
  3. The taxpayer refuses or neglects to pay the amount assessed
  4. The IRS sends the taxpayer a Final Notice of Intent to Levy and a Notice of Your Right to a Hearing (note that IRC 6331(d) requires that a taxpayer be notified in writing – via personal delivery, certified or registered mail to taxpayer’s last known address – before the IRS may seize property)
  5. 30 days pass after the Notices have been sent (there are a few exceptions to the 30-day rule, such as where collection of the tax is in jeopardy or the tax is to be collected from a state tax refund)

Under California Government Code sections 7171 and 7220, California state tax liens may be recorded and filed by the Board of Equalization (BOE), Employment Development Department (EDD) and the Franchise Tax Board (FTB). 

The effect of a tax lien

One the IRS files a Notice of Federal Tax Lien, your property (e.g., home, car, investments) is at risk of being seized, as are your future assets. A lien may also attach to your business property, including your accounts receivables. Your ability to obtain credit may be limited. Also keep in mind that tax debts are not necessarily dischargeable in bankruptcy.

What to do in the event of a federal tax lien 

There are a number of ways to handle a federal tax lien:

  1. Pay your tax debt in full, and the lien should be released within 30 days
  2. Apply for a Certificate of Discharge under IRC 6325(b) for a specific property if the value of other property encumbered by the tax lien is at least twice the value of the amount of the federal debt secured by the lien
  3. Apply for a Certificate of Subordination under IRC 6325(d) to move the federal government to a junior creditor position to facilitate the acquisition of a mortgage or loan
  4. Submit an Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien – this option is available in the event of IRS procedural errors, following an installment agreement or to facilitate payment of the tax (note that you must also satisfy other requirements to be eligible). 

Our tax attorneys put their experience to work for you

For more than 30 years, the tax law team at Moskowitz, LLP has vigorously represented the firm’s clients in matters before the IRS, FTB, BOE, EDD and other taxing agencies. If you are dealing with a federal or state tax lien, we can help. Contact our San Francisco office immediately.