Taxation & Estate Planning

IRS UPDATES LIEN PRIORITY REGULATIONS

By Charles Rubin

Like any lien on property, federal tax liens on property of a delinquent taxpayer raise questions of priority of payment against other lienholders. Under Code Section 6323, the holder of a security interest (including a mortgagee or pledgee) is protected against a general tax lien if, before the IRS files notice of lien, the security interest is in existence, even if it came into existence after the tax lien arose. The holder of a security interest is protected even if the holder had actual knowledge of the tax lien before acquiring the interest.

The IRS has not updated its lien priority regulations in many years. It recently issued proposed regulations, that will be effective if and when final. Highlights of the new regulations include:

--A Form 668, Notice of Federal Tax Lien, may be filed either in paper form or electronically;

--With regard to a Notice of Federal Tax Lien that includes a certificate of release, failure to timely refile the Notice in any jurisdiction where it was originally filed would extinguish the lien;

--A purchaser of property in a casual sale is protected against a filed tax lien if the sale price is less than $1,000 (adjusted for inflation - $1,320 in 2008);

--A holder of a mechanic lien is protected against a filed tax lien with respect to residential property in an amount up to $5,000 (adjusted for inflation - $6,600 in 2008);

--Household goods are exempt from levy to the extent they don't exceed $6,250 in value (indexed for inflation - $7,900 in 2008);

--The regulations indicate that there is generally a 10-year period (reflecting the period in Code Sec. 6502 ) for instituting a proceeding in court or serving a levy to collect a properly assessed tax.

Preamble to Proposed Regulations 4/16/08; Prop Reg § 301.6323(b)-1 , Prop Reg § 301.6323(c)-2 , Prop Reg § 301.6323(f)-1 , Prop Reg § 301.6323(g)-1

Full post as published by Rubin on Tax on May 11, 2008 (boomark / email).