While most people know that the Internal Revenue Service (IRS) can seize assets and other property for unpaid taxes, most are not clear on how the IRS can do so. So let's briefly discuss the key mechanisms of how the IRS does just that: a “statutory lien.”
The Name of the Lien Explains
A “lien” is a publicly-recorded document to give people notice that a property owner owes a debt to a particular party. Therefore, the property owner should not dispose of or alter the property without first paying back the debtholder.
While banks are often the most common entities to file a lien, liens can be filed by anyone who holds a debt. (When construction workers work on a property and aren't paid for their services, they often file what's known as a “mechanic's lien.”)
The Internal Revenue Code, the federal statute that regulates how the IRS can operate, has a provision that enables the federal government to file liens relating to unpaid taxes.
Under this law, if any person who is required to pay taxes is notified they have an outstanding tax debt, but they don't pay it, then the government has the right to place a lien on the debtor's property.
To underscore the fact that the authority to impose this type of lien comes directly from the IRS' governing statute and distinguish it from other debtholders' liens, the IRS lien is referred to as the “statutory lien.” (But statutory liens are also sometimes called “assessment liens” or the “silent liens.”)
Statutory Lien Requirements are Protections for Taxpayers
As brief as the relevant statute is, it creates significant requirements that protect an indebted taxpayer.
First, the law requires that, before the IRS can file a statutory lien, the IRS must have assessed the taxpayer's debt. It can't simply file a lien for any amount; instead, the lien must only be for the amount the taxpayer truly owes.
Next, the IRS must notify the taxpayer of that debt and demand the debt be paid. So the taxpayer needs to know there's a debt and have the opportunity to pay it.
And the requirement that the taxpayer must have liability doesn't just apply to the initial filing of a lien. It also means that once a taxpayer pays the debt, the IRS must release a property from any already-filed lien.
This is just scratching the surface of statutory lien requirements and procedures. The bottom line is that owing a debt to the IRS doesn't have to be the end of the story. It may be just the beginning. But it's essential that if the IRS is placing a lien on your property, consult with a tax attorney as soon as possible. If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.