Call for a Consultation (602) 200-7399


What Is the “Substantial Compliance” Test for Tax Liens?

Posted by Brandon Keim | Jun 02, 2023 | 0 Comments

Before enforcing any levy, the Internal Revenue Service (IRS) must notify a taxpayer of their delinquent debt. But what constitutes effective notice? The IRS doesn't need to be perfect. Instead, courts have held that “substantial compliance” is enough. So let's examine what “substantial compliance” means and how it can impact you in an IRS lien case.

What Is at Issue—What's at Stake

Before levying any property, the IRS usually files a “Notice of Federal Tax Lien,” a public document that notifies creditors of the IRS's lien on the property. The filing of this notice is significant because its filing date is used to give the IRS priority over other creditors.

But what if there are errors in the notice that misidentify the taxpayer? Do these errors negate the effectiveness of the notice? That's been the argument of some taxpayers who have challenged the liens in court.

In the leading cases, the errors have been small. For example, plaintiffs have challenged when the IRS included the wrong letter for a taxpayer's middle initial, had one letter misspelled in a last name, or substituted the use of an ampersand (&) when a company used “and” written out.

While these differences may seem trivial, most title searchers and related property reviews are done using form-driven computer searches. A misspelling or an ampersand could result in a false negative—a response that there were no liens relating to a taxpayer when a lien was in place.

Therefore, goes the plaintiffs' arguments, the IRS never filed an effective notice of a lien, so it couldn't have legally executed the levy.

The “Substantial Compliance” Test

The leading case on this issue is U.S. v Sirico. In that case, the Sirico Court held that a notice, even with typos, meets the requirement. The court explained:

The essential purpose of the filing of the lien is to give constructive notice of its existence. The test is not absolute perfection in compliance with the statutory requirement for filing the tax lien, but whether there is substantial compliance sufficient to give constructive notice and to alert one of the government's claim.

In other words, the notice just needs to be close enough that it should have led to creditors' getting the notice. The fact that, due to the error, creditors may not actually receive that notice is irrelevant. (Practically speaking, this puts the burden on creditors to look for liens; they should be using name variations to find errant records.)

The lesson here is that tax law is technical—but the IRS can still hold taxpayers liable when technical requirements aren't always satisfied. 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.

About the Author

Brandon Keim

A Certified Tax Law Specialist, CPA, partner at Frazer Ryan Goldberg & Arnold LLP, and former Senior IRS Trial Attorney, Brandon Keim holds an LL.M. in Taxation from Georgetown University Law Center.


There are no comments for this post. Be the first and Add your Comment below.

Leave a Comment


Aenean lacinia bibendum nulla sed consectetur. Donec sed odio dui. Maecenas sed diam eget risus varius blandit sit amet non magna. Nulla vitae elit libero, a pharetra augue. Curabitur blandit tempus porttitor. Morbi leo risus, porta ac consectetur ac, vestibulum at eros. Cras justo odio, dapibus ac facilisis in, egestas.

The act of visiting or communicating with Brandon A. Keim via this website or by email does not constitute an attorney-client relationship. Communications from non-clients via this website are not subject to client confidentiality or attorney-client privilege. Further, the articles, discussion, commentary, forms and sample documentation contained in this website are offered as general guidance only and are not to be relied upon as specific legal advice. For legal advice on a specific matter, please consult with an attorney who is knowledgeable and experienced in that area. Attorneys listed in this website practice only in the jurisdictions in which they are admitted. This website is governed by the Arizona Rules of Professional Conduct.