When a taxpayer doesn’t pay income taxes, the IRS automatically gets a lien against the taxpayer’s property. That means that legally, the taxpayer can’t sell anything without using the proceeds to pay the IRS. The IRS almost never enforces this “silent lien,” however. It’s silent because no one else knows about it. The lien only becomes public when the IRS records a Notice of Federal Tax Lien (NFTL) with the local county recorder.

Even after the NFTL is filed, it tends to be passive.  It doesn’t require that you pay the tax, unless you sell something major, like a house or a car. Then the IRS gets to collect the proceeds that would otherwise go to you. But an NFTL can cause problems. Landlords may not rent to you. Vendors may require cash deposits rather than payment plans. Some vendors may refuse to deal with you.

Timing of Filing the Notice of Federal Tax Lien
The IRS has an unquestioned legal right to file a lien notice when the taxpayer owes more than $5. But it often doesn’t file a notice even when a taxpayer has owed money for a long time. When does the IRS file a lien notice?

The Internal Revenue Manual (IRS’s internal procedure manual) sets out the procedures for notice filing at Section 5.12.2 (https://www.irs.gov/irm/part5/irm_05-012-002). In general, tax revenue officers are supposed to file notices when a taxpayer owes more than $10,000 in total tax. They don’t always do it, though. Sometimes they get overwhelmed, and don’t keep up with their work.

IRS agents also are not supposed to file a NFTL if it has been more that 120 days since the last contact with the taxpayer. Since the notice is a black mark on a taxpayer, the revenue officer is supposed to try to collect the tax first before going public.

Taxpayers can always try to negotiate with IRS to not file the NFTL. Sometimes tax officers will listen. The Internal Revenue Manual gives an example of appropriate deferral of a lien notice when a taxpayer proves that its customers will stop paying it if they see a recorded lien notice. IRM 5.12.2.4.3(4)a.

Lien notices are a particular specialty of mine. Please call me if you’re having an issue with one.

June 22, 2020