Liens are tools that creditors use in order to secure debts. It is a security interest granted on items of property. Tax liens, therefore, are liens on property to secure payment of income, gift, or estate taxes. Internal Revenue Code § 6321 allows the government to secure liens on all personal and real property. This includes intangible property, as well as future interests, and even property that the taxpayer acquires after the creation of the lien.
How is a Tax Lien Created?
For the IRS to secure a tax lien, it must meet three requirements:
- assessment,
- notice and demand, and
- nonpayment.
Assessment: The first thing that must happen is that the IRS must assess the tax liability on the taxpayer.
Notice and demand: Although the statute states that the IRS must give notice to the taxpayer of the unpaid tax and its amount and demand payment within 60 days of assessment, a regulation that has never been challenged allows the IRS to give notice outside the 60 day period. The notice must go to each person liable for the tax. A joint notice to spouses is satisfactory to serve both individuals. Case law is split as to whether the IRS may bring suit without serving a proper notice and demand.
Nonpayment: The IRS must provide the taxpayer with 30 days to pay following the notice before making a levy.
When is a Tax Lien Effective?
As explained above, some time must pass between the assessment of a tax and the actual creation of the lien. However, once the tax lien is created, it is deemed to have attached as of the date of the tax assessment.