How Does a Tax Lien Arise & What is the Duration of a Tax Lien?

How does a tax lien arise?  How long does the tax lien exist?  As a tax attorney these are common questions that I hear.  The article below will continue our discussion on tax liens and attempt to answer the questions above.

How is a tax lien created or how does a tax lien arise?

As we have discussed in previous articles, a tax lien is a statutory lien.  The tax lien will “arise” when an individual or a business is liable to pay an amount of tax to the government and fails to pay such amount after demand from the government.  Generally, demand would be considered a notice from the IRS stating the tax period or periods, the amount due and requesting payment.  See Internal Revenue Code Section 6321.  The Internal Revenue Code states a “person” and will define a person as an individual, estate, trust, partnership, corporation, association and companies under IRC Section 7701.  The tax lien is in effect and effective from the date the government assesses the tax, thus the lien can relate back to the assessment date when the taxpayers fails to pay the tax debt.  Do not confuse this issue with the filing of a Notice of Federal Tax Lien.  The IRS does not need to file the Notice of Federal Tax Lien for the tax lien to attach to property.  The key issue is, the Notice of Federal Tax Lien must be filed for the IRS to have priority over other creditors.  Thus, the actual Notice of Federal Tax Lien that becomes public knowledge gives the IRS priority, but the actual lien and attachment to assets dates back to the assessment date for the taxes due.

How long does an IRS tax lien last?

A federal tax lien will continue to remain in place until the tax liability is satisfied, or becomes unenforceable because the collection statute has expired.  See IRC Section 6321.  The collection statute expiration date (CSED) is the date the collection statue expires and thus the date the IRS can no longer actively collect on the tax debt through bank levies, wage garnishments and the seizure of assets.  Generally, after the assessment of tax, the collection statute is ten years under Internal Revenue Code Section 6502, and thus the tax lien could be in place until such collection statute expires.  It is important to note that certain actions can toll the collection statute or stop the statute from running.  For example, filing bankruptcy or an offer in compromise will toll the collection statute.  Moreover, requesting a collection due process hearing will toll the collection.  The common theme that tolls the collection statute is the government’s ability to collect.  If the government must hold on collections such as when a taxpayer files bankruptcy, the clock does not tick in regards to the amount of time the government can collect.  The collection statute can also be extended under a partial payment installment agreement and the release of a levy that is accompanied by an agreement to extend the statute to a specific date.  Furthermore, IRC Section 6503 tolls the statute under certain situations such as when the taxpayer is outside of the United States for at least six months.

Please contact The McGuire Law Firm to speak with a tax attorney regarding any of your tax questions and needs.  A tax attorney can assist you with IRS tax matters and individual and business tax planning and tax issues.

Denver IRS Tax Lien