Summary
Information prepared by Justin C. Chung, Legislative Attorney and Jamie L. Hutchinson, Visual Information Specialist.
Federal Tax Lien
ENFORCEMENT
A federal tax lien gives the government rights to a taxpayer's property when the taxpayer fails to pay a tax
debt. The government can enforce a federal tax lien through seizure or sale of a taxpayer's property to pay
the tax debt. The Internal Revenue Code (Title 26 of the United States Code) provides for two lien
enforcement mechanisms: administrative levy and judicial foreclosure. The government decides to pursue
either administrative levy or judicial foreclosure based on limitations on each in the Internal Revenue Code.
Federal Tax Lien
26 U.S.C. § 63211
Administrative Levy
26 U.S.C. § 63312
Judicial Foreclosure
26 U.S.C. § 7403
1 26 U.S.C. §§ 6324, 6324A, and 6324B also provide for federal tax liens upon nonpayment of certain estate and gift taxes. Such liens for unpaid estate and gift taxes are
also enforced through administrative levy or judicial foreclosure.
2 "Levy" refers to the IRS seizure of a taxpayer's property. 26 U.S.C. § 6331(b). The IRS can sell a taxpayer's property after seizure under 26 U.S.C. § 6335.
3 26 U.S.C. § 7401.
4 Certain property, such as child support payments, is exempt from an administrative levy. Other property, such as principal residences, have additional procedural
requirements to levy. 26 U.S.C. § 6334.
5 United States v. Rodgers, 461 U.S. 677, 693 (1983).
6 A CAP hearing is available before or after notice by the IRS of either the lien or intent to levy, but the decision cannot be judicially appealed to the Tax Court. Internal
Revenue Manual 8.24.1. A taxpayer has a statutory right to a CDP hearing but must request it within a certain time after notice. 26 U.S.C. §§ 6320(a)(3)(B), 6330(a)(3)(B).
A CDP hearing's determination can be appealed to the Tax Court. 26 U.S.C. § 6330(d). If a taxpayer does not make a timely request for a CDP hearing, the taxpayer
has one year from notice to request an equivalent hearing, the determination of which cannot be appealed to the Tax Court. 26 C.F.R. §§ 301.6320-1(i)(1),
301.6330-1(i)(1).
7 26 U.S.C. § 6343(a)(1)(D). 26 C.F.R. § 301.6343-1(b)(4) denes economic hardship as being unable to pay reasonable basic living expenses.
8 United States v. Rodgers, 461 U.S. 677, 709 (1983).
9 26 U.S.C. §§ 6343(b), 7426; 26 C.F.R. §§ 301.6320-1(a)(2), 301.6330-1(a)(3).
10 The court will consider such factors as the following: (1) "the extent to which the Government's nancial interests would be prejudiced if it were relegated to a forced
sale of the partial interest actually liable for the delinquent taxes"; (2) "whether the third party with a non-liable separate interest in the property would, in the
normal course of events . . ., have a legally recognized expectation that that separate property would not be subject to forced sale by the delinquent taxpayer or his
or her creditors"; (3) "the likely prejudice to the third party, both in personal dislocation costs and . . . practical undercompensation"; and (4) "the relative character
and value of the non-liable and liable interests held in the property." United States v. Rodgers, 461 U.S. 677, 710–11 (1983).
WHO brings the action?
WHAT can be seized?
WHAT review is
available for
taxpayers?
WHAT protections
are available for
third parties with
interests in the
seized property?
WHO
holds the lien?
Federal Tax Lien Enforcement
IRS Department of Justice Tax Division,
upon referral from the IRS3
Taxpayer's interest in the property4 The property itself, not merely the
taxpayer's interest5
(1) Collection Appeals Program (CAP)
hearing; (2) Collection Due Process
(CDP) hearing, with appeal to U.S. Tax
Court; or (3) equivalent hearing6
The IRS must release the levy if it
determines that the seizure creates an
economic hardship to the taxpayer.7
A federal court adjudicates and
determines all rights to the property.
The court cannot reject the
foreclosure of a taxpayer's property to
protect the interests of the taxpayer.8
No notice to third parties is required
before seizure. After seizure,
third parties can seek administrative
review or le a lawsuit for return of
property or proceeds from its sale.9
All parties with potential interest in the
property must be notied, included in
suit, and allowed to defend their rights
before property is foreclosed. Third parties
must be compensated from the sales
proceeds for their interest in the property.
A court has limited equitable discretion to
reject foreclosure of a taxpayer's property
to protect third party interests.10
The lien automatically arises when
the taxpayer fails to pay a tax
liability after the Internal Revenue
Service (IRS) assesses the liability
and gives the taxpayer notice and
demand for payment.
WHEN
does the lien arise?
The government holds the
lien against property of
the delinquent taxpayer.
The lien attaches to all property
and rights to property, whether
real or personal, belonging to the
taxpayer, including property
acquired after the lien arises.
WHAT property
does the lien attach to?