Federal Tax Lien Remedies
Federal Tax liens are rarely just “tax issues” and can impact clients in a multitude of ways across several practice areas. Obviously, they can impact the sale or transfer of real estate in a residential or commercial setting, but they can also complicate business transactions, divorce proceedings, foreclosure remedies, probate proceedings, estate planning techniques, bankruptcies, and other areas of law. While, sometimes, the best remedy is to just get a lien payoff figure and pay it off, there are other options depending on a client’s goals and circumstances that may be worth investigating before getting a payoff figure. This article explores alternative remedies for resolving a notice of federal tax lien beyond acquiring a payoff figure.
What Is a Federal Tax Lien?
Under Internal Revenue Code §6321, if “any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.”[1] As such, this federal tax lien arises after tax is assessed by operation of law and is in effect even if there is no notice of federal tax lien filed.[2] This is commonly known as a “secret lien.”
It is the notice of federal tax lien that is commonly referred to as “a federal tax lien,” but this filed notice is simply a record of public filing of the underlying lien. This notice of federal tax lien provides public notice and secures both real and personal property in the county in which it is located.[3]
When a notice of federal tax lien is filed, the taxpayer will receive a letter that gives the right to request a collection due process (CDP) hearing with IRS Independent Office of Appeals.[4] A taxpayer or representative must file this request within 30 days of the date of the letter to preserve the right to a CDP hearing.[5] This allows a taxpayer to dispute the lien filing and/or request an alternative collection solution. A CDP hearing is also important because it gives the taxpayer the right to appeal the decision of the appeals officer to Tax Court within 30 days after the appeals officer issues a notice of determination.[6] An equivalency hearing (when an appeals hearing is requested after the 30-day deadline) is, unfortunately, not typically given the same weight of importance or impartiality as a CDP hearing since it lacks Tax Court rights.[7]
Certificate of Non-Attachment
Occasionally, the IRS will file a notice of federal tax lien against the wrong person or confuse one taxpayer of a similar name with another. In such circumstances, it would be unjust to hold the wrong person responsible for the tax liability, so the IRS is authorized under statute to provide a certificate of non-attachment that must be conclusive that the lien does not attach to the person referred to in the certificate.[8]
This remedy is usually used when a notice of federal tax lien is filed and attached to one’s property, but it is not their tax liability. While normally used in situations in which the property owner and taxpayer liable for the tax liability has the same name, or is a “junior” or “senior” of a family member, the remedy can be useful in other situations. For example, in one such unique situation, a woman sold her property to her boyfriend for full consideration. It was sold before the two were married and the boyfriend was not liable for any of the tax liability. She had no interest in the property and was not on title when they married. The IRS filed a lien on the property in the husband’s name. Since he did not have tax liability, the lien was essentially removed through the certificate of non-attachment process.
This remedy can also be utilized by a non-liable person who holds property by tenancy by the entirety, or through joint tenancy with right of survivorship when the person with the notice of federal tax lien is deceased.[9]
Surprisingly, there is no formal IRS form to request this relatively rare type of relief request. In such circumstances, the procedure is to write a letter to the appropriate advisory unit[10] and include the name and address of the person requesting a certificate of non-attachment under I.R.C. §6325(e), an explanation as to why it is needed, a description of the property for which the certificate is requested including the full address, legal description, and copy of the requesting person’s deed, a copy of the notice of federal tax lien, the address of the person making the request at the time the lien was filed (which is useful if the underlying issue is mistaken identity of the same name), as well as the Social Security number of the person making the request.[11] The IRS wants to make sure they are not releasing a lien when the requesting person owes federal taxes. It is also important to include a statement as to whether the taxpayer named on the notice of federal tax lien has or has any interest in the property. One can also include any other information or documentation that would be useful in showing the IRS advisory unit that a certificate of nonattachment should be issued, such as copies of deeds, recorded mortgages, title reports, caselaw, or a death certificate. At the end of the letter, one must also provide a declaratory statement.[12] Once sent to the advisory unit, the IRS usually takes 30 to 60 days to issue the certificate. The IRS advisory person working on the file may reach out to the representative if any additional information is required.[13]
Certificate of Discharge
A certificate of discharge is used when the taxpayer (who owes the liability) is requesting the IRS to release the notice of federal tax lien against a specific property (personal property or real estate) in the county in which the notice of federal tax lien is filed regardless of whether the taxpayer owns one or multiple properties in that county. Authorized under I.R.C. §6325(b), the IRS will release the property from the notice of federal tax lien in order to effectuate the transaction in certain circumstances.[14] If the value of the property remaining attached by the notice of federal tax lien is at least double the liability of the federal tax lien(s) plus other encumbrances senior to the liens, then the IRS will provide a certificate of discharge to release that particular property from the lien.[15] The lien remains in the public record, but a conditional commitment letter, which will be given to the representative or taxpayer to give to the title company/closer, will allow the property transaction to close. Once the terms on the conditional commitment are met, the IRS will file a certificate of discharge in the public record as to that particular property. This particular use of a certificate of discharge is useful when the taxpayer wishes to keep the property but take out a loan or refinance the property. The IRS’s interests are preserved by other assets secured by the notice of federal tax lien, the refinance will likely allow the IRS to collect the tax liability, and the discharge will allow the lender to approve a loan since it will not lose title position to the IRS’s senior interest. While the typical remedy for a refinance is to request a lien subordination, discussed hereinafter, most lenders will not approve a loan, even if the IRS lien is subordinate to the loan position.[16]
Another common use of a certificate of discharge is when the taxpayer wishes to sell the property but there is not sufficient equity to fully pay the IRS, or when there is no equity to pay the IRS after senior lien holders.[17] Unfortunately, a lot of real estate professionals improperly advise their clients that they will need to “come to the table with the difference” to pay off the federal tax liability when a full payoff is requested without realizing that a certificate of discharge is possible. With a certificate of discharge, if there is equity after senior lien holders are paid, but there are insufficient funds to fully pay off the IRS liability, the IRS will take what it can get so long as it matches their interest in the secured lien.[18] As a consequence of that, however, the sellers/taxpayers will not receive any proceeds from the transaction. The IRS will provide a conditional commitment letter for the amount of proceeds after Realtor commissions, title company, and other customary transaction costs, including attorneys’ fees. As part of the application process, it is important to provide a preliminary closing statement or ALTA statement that details the proposed transaction costs and shows net to seller as $0 with the IRS getting the proceeds after senior lien payoffs, traditional closing costs, and attorneys’ fees. In the event of a “short sale” or “deed-in-lieu of foreclosure” transaction, the amount to the IRS would be $0 since there isn’t sufficient funds to pay the senior lienholder.[19] Such transactions are complicated due to the timing of the short sale or deed-in-lieu of foreclosure approval letters and associated deadlines and that such letters are usually needed to submit the application for a certificate of discharge to the IRS, which typically take 30 to 60 days.[20]
Such certificates are also useful when the closing has already been held and the proceeds of such sale are held in escrow subject to the liens and claims of the U.S.[21] or when there has been a deposit made or bond furnished in an amount equal to the value of the U.S.’s interest.[22] These resolutions are rarer as most title companies and other closers requires a conditional approval prior to closing. But this is an option, particularly in complicated transactions, when a detailed escrow agreement can be negotiated.
Certificates of discharge are requested by filing IRS Form 14135 with the appropriate IRS advisory office and including a copy of the lien, taxpayer information, applicant information, transferee information, appraisal or valuations, proposed sales price and expected proceeds, the basis for the discharge, the property address or description, copy of deed if appropriate, copy of contract, title report, mortgages or payoff statements from senior lienholders, and a proposed closing statement.[23]
Withdrawal of Notice of Federal Tax Lien
A withdrawal of notice of federal tax lien acts as if the notice of federal tax lien is not even there.[24] While often requested, notice of federal tax lien withdrawal requests are difficult to get approved since the IRS likes to secure its interest. There are four provisions under which a lien withdrawal request can be made.[25]
If a notice of federal tax lien was prematurely filed or not filed in accordance with administrative procedure, it can be withdrawn.[26] Such circumstances are fairly rare, but can occur when the notice of federal tax lien was filed before the liability was assessed. It can also occur when the person reasonable for filing the notice of federal tax lien has knowledge that the taxpayer has an undisputed credit available that will satisfy the tax liabilities on the lien such as a carryback, overpayment, or other credit.[27] Finally, when a taxpayer has filed for bankruptcy and the notice of federal tax lien is filed while the automatic stay is in effect, such a filing is against the IRS administrative procedure (not to mention the bankruptcy stay statute), and must be withdrawn.[28]
The second provision whereby a lien can be withdrawn is where a taxpayer has entered into an installment agreement or payment plan with the IRS to satisfy the tax lien unless such agreement provides otherwise.[29] Usually, the filing of a notice of federal tax lien is a condition of an installment agreement, so the use of this provision is more uncommon than, perhaps, it should be. Where this provision is of use is where the taxpayer has an assessed tax liability of under $25,000.[30] In such a situation, if the taxpayer agrees to a “direct debit” installment agreement, which involves automatic withdrawals from the taxpayer’s bank account, and after three consecutive installment agreements have been made, then the taxpayer can request a withdrawal of notice of federal tax lien.[31]
The third, and arguably the most common provision, under which a notice of federal tax lien will be withdrawn is where withdrawal will facilitate collection.[32] Under this provision, the taxpayer needs to show the IRS that the withdrawal of the notice of federal tax lien will result, either immediately or in the future, in a greater amount being collected by the IRS than if the notice of federal tax lien was maintained.[33] Such a determination can be made by a revenue officer in the course of making a collection determination.[34] But more often than not, the withdrawal request is a contentious dispute to be argued with an appeals office in a collection due process hearing.[35]
Under this provision, the taxpayer really needs to show the IRS that the lien hinders the taxpayer’s ability to pay the tax. This can usually be shown in circumstances where the taxpayer holds a special license that is required for his or her employment. If the person is not licensed, they cannot work, and, thus, cannot pay the IRS. It is best to provide the license requirement.[36] This provision can work for individual taxpayers and businesses as well. In one such circumstance, the business may rely on state subsidized funding to serve an underserved population, like a low-income daycare, or nursing or adult care for the disabled or elderly. A written state guideline can be provided stating that there can be a payment plan but no notice of tax lien. Otherwise, funding will be pulled.
The fourth and final provision whereby a withdrawal of federal tax lien can be granted is when such withdrawal will be in the best interest of the government.[37] This is an extremely rare provision that requires that “best interest of the government” determinations are made by both the Office of the Taxpayer Advocate and the IRS. In making such determinations, the IRS must consider the impact of withdrawing the lien, the impact on the taxpayer’s ability to pay the tax liability, and whether there are different remedies that will better balance taxpayer goals with the government protecting their interest.
A withdrawal of federal tax lien remedy will not be approved where a lien subordination, certificate of discharge, offer in compromise commitment letter, or certificate of non-attachment is more appropriate.
Subordination of Notice of Federal Tax Lien
The IRS subordinates a notice of federal tax lien when it increases the taxpayer’s ability to pay the tax liability.[38] The IRS looks to see if there will be cash out of a refinance situation for a “full pay” scenario, or if the taxpayer can increase their installment agreement payments. If there is a cash-out refinance, any proceeds not rolled into the mortgage or for closing costs go to the IRS.[39] The IRS also subordinates to factoring agreements.[40]
The IRS also considers subordinating to reverse mortgages, but the IRS will first look to see if the equity can be borrowed in a traditional refinance scenario such that they would be able to acquire a lump sum payment.[41] All payments made by the lender in a reverse mortgage situation must be paid to the IRS.[42]
While a lien subordination is a great collection alternative in theory, it has very limited practical application. While the IRS is willing to subordinate its liens, lenders will typically not consider lending where such a subordination is required, even though the subordination resolves any lien priority issues for the lender. Most residential lenders are supported by Fannie Mae or Freddie Mac government loans. The existence of the notice of federal tax lien can not only impact a debt-to-income ratio, but is a risk indicator of default of the mortgage. The Fannie Mae selling guide states that tax liens must be paid off at or prior to closing.[43] Furthermore, “[d]elinquent federal income taxes that are approved to be paid by a monthly installment agreement with the IRS must be paid in full at or prior to closing if there is any indication that a notice of federal tax lien has been recorded against the borrower in the county in which the subject property is located.”[44] Private lenders not backed by government loans have also declined lending to borrowers with federal tax liens due to risk of default and not because the lenders were concerned with lien priority or title issues.[45] The disconnect of the IRS in failing to consider other lien remedies hinders their ability to collect, and often, for the taxpayer to resolve their liabilities.
Impact of an Offer in Compromise
Taxpayers and their counsel will often ask, “Can’t we just offer the IRS a lump sum to settle the tax liability for less then the full amount to settle the lien?” The answer is, of course, “It depends.” To settle the tax liability (inclusive of tax, penalties, and interest) for less then the full amount, taxpayers will need to go through a lengthy process (typically 12 to 24 months) to submit an offer in compromise settlement package which requires full financial disclosure.[46] In order to qualify for such a settlement, one must show the IRS that there isn’t the ability to pay what is owed in the amount of time that the IRS has to collect it. There are about 40 or so different facts that can impact the calculation of whether one qualifies for such a settlement and, also, what the amount of the offer should be to begin negotiations as the offer amount is determined by the various factors.[47] If there is an immediate need to sell property or an interest to which the lien attaches or there is sufficient equity in the property to fully pay the IRS, then an offer in compromise is not going to be a viable option for a taxpayer. If the IRS approved the offer and the sale of the property is needed to fund the offer, the IRS will provide the representative with a special type of commitment letter with a reduced payoff figure.[48]
Is the Underlying Liability Even Correct?
Whenever one is confronted with a notice of federal tax lien, especially when it is hindering a transaction, one should always ask the taxpayer whether they think the underlying liability is even correct. Sometimes a taxpayer may not even know that there is a lien and if they know about it, they may not understand where the liability even comes from. In such circumstances, it is important for the taxpayer and their representative to seek out a tax attorney to investigate. All of the lien remedies that have been discussed thus far are “collection” resolutions. Where the underlying liability is at issue, there may be a totally different remedy that can save the taxpayer a significant amount of money.
Perhaps the taxpayer did not know about the liability because a spouse purposely hid mail from the IRS regarding the liability and such liability is attributable to the spouse. In such a circumstance, it may be prudent for the unknowing spouse to consider an “innocent spouse” claim.[49] Maybe the taxpayer moved and did not think they had income, or had foreclosures or bankruptcy and received 1099-C forms for cancellation of indebtedness that were never received such that the IRS eventually filed a substitute for return on their behalf. In such cases, there may be an opportunity to file an original or amended return to reduce the liability. Whatever the underlying liability issue is, it should always be considered that the tax liability is not correct and investigated, especially when the taxpayer may have doubts.
How CSEDs Relate and the Self-releasing Lien
The Collection Statute Expiration Date (CSED) is the date that the underlying federal tax liability expires and becomes no longer collectable. The IRS has 10 years from the date of assessment to collect on the liability.[50] Those 10 years are subject to different “tolling periods,” which would extend the CSED.[51] The federal tax lien usually shows what the CSED is at the time of lien filing in column “e” of the notice of federal tax lien. Since tolling events can occur after the filing of the notice of federal tax lien, the date in column “e” should not be relied upon as the CSED date. Taxpayers and their counsel should consult with a tax attorney as to the CSED date, if it is material to the transaction. Depending on the CSED date, the taxpayer is sometimes better off not pursuing certain collection alternatives since such alternatives may toll or extend the statute of limitations on collections.[52] It may be better to delay the transaction until the tax liability expires.[53]
If the lien is not refiled and it is past the column “e” date, then the lien self-releases as to that specific tax period. When a tax lien self-releases, it does so under operation of law which is referenced on the notice of federal tax lien itself.[54] There need not be any other “paper” or satisfaction filed in the public record if all column “e” dates have expired. The lien simply no longer attaches.
Where Is the Notice of Federal Tax Lien Located?
Where the notice of federal tax lien is filed also has major implications. The notice of federal tax lien only attaches to properties in the county in which it is filed.[55] If the IRS fails to file a notice of federal tax lien in the county which a real property is located, the notice of federal tax lien does not encumber that property, and it can be sold without release.[56]
Sometimes, It Is Best to Just Pay It Off
If a taxpayer can pay off the tax lien from an encumbered property, or can borrow funds from a private source, it is best, sometimes, to just get a payoff letter, which usually takes less than 24 hours, and pay it off. With notice of federal tax lien issues, it is almost always recommended that one retains tax counsel to look at all remedy options, CSED dates, and penalty abatement opportunities.[57]
[1] I.R.C. §6321.
[2] It is particularly important, especially in transactional matters, to ask if there is any federal tax due as part of the due diligence and disclosure process and not simply rely on disclosures regarding whether there is any notice of federal tax lien filed or title reports.
[3] I.R.C. §6323. See also I.R.C. §6323 for a list of types of property to which the notice of federal tax lien does not attach.
[4] Such notices are often in the top-right corner as “LT11” or in the bottom-right corner as “1153.”
[5] I.R.C. §6330.
[6] The 30-day deadline is found in I.R.C. §6330 but the Supreme Court in Boechler, P.C. v. Comm’r of Internal Revenue, 142 S. Ct. 1493 (2022), held that the 30-day deadline for filing a Tax Court petition is procedural and not jurisdiction, and, thus, is subject to equitable tolling.
[7] While many appeals officers do their best to maintain their unbiased judgment in either setting, as the hearings are essentially conducted the same, it is this author’s experience, and the experience of many other tax controversy and litigation practitioners, that a taxpayer’s position is more seriously considered under the potential threat of Tax Court review.
[8] I.R.C. §§6325(e) and (f)(D).
[9] Under joint tenancy with right of survivorship or tenancy by the entirety, title passes by operation of law. If title is held as tenancy in common, the notice of federal tax lien still attaches to the deceased’s interest and that interest must be resolved pursuant to state law, usually through the probate process. As such, a notice of federal tax lien is usually resolved in probate taking into account the priority probate state in Fla. Stat. §733.707. Where the proceeds of property subject to the lien are insufficient to satisfy the notice of federal tax lien, a certificate of discharge application, discussed hereafter, is the appropriate remedy to be worked in conjunction with the probate proceeding. It should also be noted that Florida’s constitutional homestead exemption does not defeat a notice of federal tax lien.
[10] See IRS, Collection Advisory Offices Contact Information, Publication 4235, available at https://www.irs.gov/pub/irs-pdf/p4235.pdf.
[11] See IRS, How to Apply for a Certificate of Non-Attachment of Federal Tax Lien, Publication 1024, available at https://www.irs.gov/pub/irs-pdf/p1024.pdf.
[12] One must include in the letter the declaratory statement that states: “Under penalties of perjury, I declare that I have examined this application, including any accompanying schedules, exhibits, affidavits, and statements, and to the best of my knowledge and belief, it is true, correct, and complete.” Id.
[13] The representative must submit an authorized IRS Form 2848 to the IRS.
[14] I.R.C. §6325(b).
[15] I.R.C. §6325(b)(1).
[16] See Fannie Mae, Selling Guide, Federal Income Tax Installment Agreements, available at https://selling-guide.fanniemae.com/sel/b3-6-05/monthly-debt-obligations#:~:text=Student%20Loans%20below.-,Federal%20Income%20Tax%20Installment%20Agreements,been%20made%20prior%20to%20closing.
[17] I.R.C. §§6325(b)(2)(A) and (b)(2)(B), respectively.
[18] I.R.C. §6325(b)(2)(A).
[19] Authorized under I.R.C. §6325(b)(2)(B).
[20] One can, of course, start the certificate of discharge process with an explanation in the hopes the short sale or deed-in lieu letter are approved and provided to the taxpayer or representative while the certificate of discharge application has been submitted and pending assignment to an IRS advisory employee.
[21] I.R.C. §6325(b)(3).
[22] I.R.C. §6325(b)(4).
[23] See IRS Form 14135, available at https://www.irs.gov/pub/irs-pdf/f14135.pdf.
[24] I.R.C. §6323(j)(1).
[25] Id.
[26] I.R.C. §6323(j)(1)(A).
[27] Internal Revenue Manual (IRM) §5.12.9.3.1(1). Such circumstances are rare.
[28] IRM §5.12.9.3.1(2); 11 U.S.C. §362.
[29] I.R.C. §6323(j)(1)(B).
[30] Assessed liability is tax, penalties, and interest that have been assessed without the addition of the accrued interest and penalties. Usually, it is slightly less than the total tax liability inclusive of all interest and penalties. The IRS priority practitioner or ACS customer service phone lines will be able to inform the representative of the assessed balance.
[31] IRM §5.12.9.3.2.1(8)(09-06-2019). In such circumstances an IRS Form 12277 is submitted with the appropriate “box” checked. It is helpful to attach a copy of the direct debit installment agreement (usually on Form 433-D) and include a transcript showing the payments and stating the statute and IRM provisions by which request is made.
[32] I.R.C. §6323(j)(1)(C).
[33] Id. IRM §5.12.9.3.3 (09-06-2019).
[34] IRM §5.12.9.3.3 (3) (09-06-2019).
[35] See note 4.
[36] See Eberto Cue v. Commissioner, United States Tax Court Docket 21404-19SL, Order (Dec. 2, 2019), when taxpayer, who was employed by a bank was required, as a condition of employment, to have no notice of federal tax lien. When the settlement officer requested documentation that Mr. Cue would lose his job if the notice was not withdrawn, and such documentation was given, the settlement officer reneged on her agreement. Following the CDP hearing and before the Tax Court trial, Mr. Cue did indeed lose his position. Judge Goeke stated: “[I]t was unreasonable for the settlement officer to overlook the impact of the lien and its public filing on the petitioner’s employment. Her failure to seriously consider the petitioner’s assertions that he would lose his position demonstrates that the settlement officer did not seriously intend to act on the third condition that she provided the petitioner in the telephonic hearing…the fact that the settlement officer did not seek a reasonable payment from the petition[er] demonstrates that the settlement officer was not actually interested in generating collection from the petitioner, but merely wished to sustain the Notice of Federal Tax Lien…Given these circumstances, we believe the settlement officer’s actions were arbitrary and capricious, and we sustain the petitioner’s argument that the Notice of Federal Tax Lien should be withdrawn.” This author has also made similar arguments in collection due process hearings where the taxpayer was a Florida licensed attorney. Under The Florida Bar v. Erlenbach, 138 So. 3d 369 (Fla. 2014), the taxpayer, who was a licensed Florida attorney, fell on some hard times due to family medical emergencies. As a result, she fell behind on her federal tax obligations. But when the case was heard, she was not only compliant with her existing obligations (in terms of timely filing and timely paying her current obligations), but she was also compliant and making payments on an installment agreement with the IRS. Her standing with the IRS was good. The Florida Supreme Court, nevertheless, disbarred her for violation of Ruls. Reg. Fla. Bar 3-4.3 and 4-8.4(c), despite her good status with the IRS, and, thus, taking away her ability to maintain her good status with the IRS.
[37] I.R.C. §6323(j)(1)(D).
[38] I.R.C. §6323(d).
[39] IRM §5.12.10.6.1 (10-14-2013).
[40] IRM §5.12.10.6.1.1.
[41] IRM §5.12.10.6.2.2.
[42] Id.
[43] Fannie Mae, Originating and Underwriting Selling Guide, available at https://selling-guide.fanniemae.com/sel/b3-6-07/debts-paid-or-prior-closing#P3466.
[44] Id.
[45] Lenders are wary of lending with certificate of discharges, even with funds held in escrow due to financial risk.
[46] I.R.C. §7122.
[47] An offer in compromise based on “doubt as to collectability” is based on a calculation of assets, liabilities, income, expenses, IRS standard allowable expenses, the quality of substantiation, and, typically, the age of the liability. It is submitted on IRS form 656 and 433-A (and 433-B if there is a business) in the IRS Form 656 Booklet, available at https://www.irs.gov/pub/irs-pdf/f656b.pdf.
[48] It has been this author’s experience that in one such transaction, the value of the property increased between the time when the offer was approved and when the sale of the property closed, such that not only did the taxpayer settle his large tax liability for less than 20%, but also walked away with over $500,000 in proceeds. In a particular type of offer in compromise, you have five months to pay 80% of the offer settlement amount from the time the offer approval letter is issued. This type of result is unusual and cannot be planned.
[49] Innocent spouse relief is authorized by I.R.C. §6013. For a full overview of innocent spouse relief, see Charlotte A. Erdmann, Innocent Spouse Relief from Joint and Several Federal Tax Liability: Updates, Hurdles, and Considerations 92 Fla. B. J. 30 (Mar./Apr. 2023), available at https://www.floridabar.org/the-florida-bar-journal/innocent-spouse-relief-from-joint-and-several-federal-tax-liability-updates-hurdles-and-considerations/.
[50] I.R.C. §6502.
[51] The CSED is extended for certain tolling period activities, such as submitting an offer in compromise, the filing of a bankruptcy, requesting a collection due process hearing while the tax year is in “pending installment agreement status,” for example. See I.R.C. §6503(h); IRM §5.1.19.3.4; IRM §5.1.9.3.6; I.R.C. §6331(k).
[52] See id.
[53] CSEDs can be calculated manually or by utilizing proprietary software. Regardless of the calculation, the representative will always want to review the transcripts to manually calculate the CSED and look for transcript errors that can render the IRS calculation of CSED incorrectly. When a tax liability expires, the transcript will usually show a balance of $0 with a “write off” code.
[54] The Notice of Federal Tax Lien contains the following information in a bolded box: IMPORTANT RELEASE INFORMATION: For each assessment listed below, unless notice of the lien is refiled by the date given in column (e), this notice shall, on the day following such date, operate as a certificate of releases as defined in I.R.C. §6325(a).
[55] I.R.C. §6323(f).
[56] Related to, but somewhat beyond the scope of this article, attorneys and tax practitioners should be aware of the impact of a federal court order reducing the federal tax liability to judgment. In such a circumstance, the CSED extends to the judgment period of 20 years, which can be refiled such that the judgment essentially never expires. Such judgments are also not limited jurisdiction. One must also be aware of the impact of criminal restitution orders.
[57] Even if acquiring a lien payoff figure and paying off the lien in full is the best remedy, it is almost always worth reviewing account transcripts for remedy options first. The taxpayer could qualify for a First Time Penalty Abatement (FTA) on one of the periods, which can be processed relatively quickly, and which could potentially save a taxpayer tens of thousands of dollars. After the FTA is processed, one can simply request a new payoff letter. See IRM §20.1.1.3.3.2.1 (03-29-2023).
Charlotte A. Erdmann is the founder of Orlando Tax Law. She earned her J.D. From Barry University School of Law and her LL.M. in taxation from the University of Florida. Erdmann’s practice focuses on federal and state tax controversy and litigation matters. She is a frequent author and speaker of tax law issues and is an active member of The Florida Bar Tax Section, currently serving as a director of the marketing and membership committee.
This column is submitted on behalf of the Tax Section, Mark Scott, chair, and Charlotte A. Erdmann, Michael A. Lampert, and Brian R. Harris, editors.
