FEDERAL REGULATION POTPOURRI ALTA 2014 Business Strategies Conference Nashville, TN

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1 FEDERAL REGULATION POTPOURRI ALTA 2014 Business Strategies Conference Nashville, TN Presented by Eric M. Schneider and Giancarlo Spolidoro A. FEDERAL TAX LIENS 1. Overview of IRS Lien and Levy Authority 2. Notice of Federal Tax Lien a. IRS Form 668(Y) 3. Revenue Reconciliation Act of Underwriting Guidelines 5. Release of Lien a. IRS Form Tenancy of Property 7. Effect of Foreclosure on IRS Liens 8. Materials a. IRS Manual b. IRS Publication 1468 c. IRS Understanding FTL B. FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT (FIRPTA) 1. Introduction a. See Generally, IRS Publication Parties subject to FIRPTA 3. Qualifying Property Interests 4. Calculation of Amount Realized 5. Exceptions from Withholding a. Enumerated Categories b. IRS Form 8288-B with Instructions c. IRS Pub 515 Section re Application for Certificate 6. Compliance with FIRPTA a. Who is required to withhold b. Liability for unpaid withholding C. FEDERAL DEBT COLLECTION PROCEDURES ACT 1. Introduction 2. Summary of Provisions in The Act 3. Underwriting Requirements 1

2 D REPORTING 1. Introduction 2. Reporting on Sale of Real Property a. Qualifying Transactions b. Exceptions to Reporting c. IRS Form 1099-S 3. Reporting on Payments to Attorneys a. When Reporting is Required b. IRS Form 1099-MISC with Instructions E. MISCELLANEOUS REGULATIONS & FORMS a. Receipt of Cash in Excess of $10,000 (Form 8300) i. IRS Form 8300 b. Racial Covenants Disclaimer i. Sample Language c. Soldiers and Sailors Relief Act d. US PATRIOT Act e. Tax Identification Numbers i. Application for Individual TIN 1. IRS Form W-7 with Instructions 2. Exceptions ii. Request for TIN and Certification 1. IRS Form W-9 with Instructions f. Estates & Trusts i. Estate and Generation-Skipping Tax Return 1. IRS Form 706 Schedule A Real Estate ii. Application for Certificate Discharging an Estate Tax Lien 1. IRS Form 4422 with Instructions a. Must also provide Form 8821 (see below) g. Transfer by U.S. Transferor to a Foreign Corporation i. IRS Form 926 with Instructions h. Disclosure to Third Parties Tax Information Authorization i. IRS Form 8821 *** Internal Revenue Service Forms, Publications, and all other presentation materials are provided for educational purposes only and should not be relied upon for actual use. 2

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7 Form (October 2011) Department of the Treasury Internal Revenue Service Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien (Internal Revenue Code Section 6323(j)) 1. Taxpayer Name (as shown on the Notice of Federal Tax Lien) 2. Social Security/Employer Identification No. 3. Taxpayer's Representative, if applicable, or Name and Title of contact person, if taxpayer is a business 4. Address (Number, Street, P.O. Box) 5. City 6. State 7. ZIP code 8. Phone Number 9. Attach copy of the Form 668(Y), Notice of Federal Tax Lien, if available, OR, if you don't have a copy, provide the following information, if available: Serial number of Form 668(Y) (found near the top of the document) Date Form 668(Y) filed Recording office where Form 668(Y) was filed 10. Current status of the federal tax lien ("x" appropriate box) Open Released Unknown 11. Reason for requesting withdrawal of the filed Notice of Federal Tax Lien ("x" appropriate box(es)) The Notice of Federal Tax Lien was filed prematurely or not in accordance with IRS procedures. The taxpayer entered into an installment agreement to satisfy the liability for which the lien was imposed and the agreement did not provide for a Notice of Federal Tax Lien to be filed. The taxpayer is under a Direct Debit Installment Agreement. Withdrawal will facilitate collection of the tax. The taxpayer, or the Taxpayer Advocate acting on behalf of the taxpayer, believes withdrawal is in the best interest of the taxpayer and the government. 12. Explain the basis for the withdrawal request (attach additional sheets and other documentation that substantiates your request, as needed) Affirmation 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 Signature (Taxpayer or Representative) Title (if business) Date Catalog Number 27939C Form (Rev )

8 General Instructions Page 2 of 2 1. Complete the application. If the information you supply is not complete, it may be necessary for the IRS to obtain additional information before making a determination on the application. Sections 1 and 2: Enter the taxpayer's name and Social Security Number (SSN) or Employer Identification Number (EIN) as shown on the Notice of Federal Tax Lien (NFTL). Section 3: Enter the name of the person completing the application if it differs from the taxpayer's name in section 1 (for example, taxpayer representative). For business taxpayers, enter the name and title of person making the application. Otherwise, leave blank. Sections 4 through 8: Enter current contact information of taxpayer or representative. Section 9: Attach a copy of the NFTL to be withdrawn, if available. If you don't have a copy of the NFTL but have other information about the NFTL, enter that information to assist the IRS in processing your request. Section 10: Check the box that indicates the current status of the lien. "Open" means there is still a balance owed with respect to the tax liabilities listed on the NFTL. "Released" means the lien has been satisfied or is no longer enforceable. "Unknown" means you do not know the current status of the lien. Section 11: Check the box(es) that best describe the reason(s) for the withdrawal request. NOTE: If you are requesting a withdrawal of a released NFTL, you generally should check the last box regarding the best interest provision. Section 12: Provide a detailed explanation of the events or the situation to support your reason(s) for the withdrawal request. Attach additional sheets and supporting documentation, as needed. Affirmation: Sign and date the application. If you are completing the application for a business taxpayer, enter your title in the business. 2. Mail your application to the IRS office assigned your account. If the account is not assigned or you are uncertain where it is assigned, mail your application to IRS, ATTN: Advisory Group Manager, in the area where you live or is the taxpayer's principal place of business. Use Publication 4235, Advisory Group Addresses, to determine the appropriate office. 3. Your application will be reviewed and, if needed, you may be asked to provide additional information. You will be contacted regarding a determination on your application. a. If a determination is made to withdraw the NFTL, we will file a Form 10916(c), Withdrawal of Filed Notice of Federal Tax Lien, in the recording office where the original NFTL was filed and provide you a copy of the document for your records. b. If the determination is made to not withdraw the NFTL, we will notify you and provide information regarding your rights to appeal the decision. 4. At your request, we will notify other interested parties of the withdrawal notice. Your request must be in writing and provide the names and addresses of the credit reporting agencies, financial institutions, and/or creditors that you want notified. NOTE: Your request serves as our authority to release the notice of withdrawal information to the agencies, financial institutions, or creditors you have identified. 5. If, at a later date, additional copies of the withdrawal notice are needed, you must provide a written request to the Advisory Group Manager. The request must provide: a. The taxpayer's name, current address, and taxpayer identification number with a brief statement authorizing the additional notifications;. b. A copy of the notice of withdrawal, if available; and c. A supplemental list of the names and addresses of any credit reporting agencies, financial institutions, or creditors to notify of the withdrawal of the filed Form 668(Y).. Privacy Act Notice We ask for the information on this form to carry out the Internal Revenue laws of the United States. The primary purpose of this form is to apply for withdrawal of a notice of federal tax lien. The information requested on this form is needed to process your application and to determine whether the notice of federal tax lien can be withdrawn. You are not required to apply for a withdrawal; however, if you want the notice of federal tax lien to be withdrawn, you are required to provide the information requested on this form. Sections 6001, 6011, and 6323 of the Internal Revenue Code authorize us to collect this information. Section 6109 requires you to provide the requested identification numbers. Failure to provide this information may delay or prevent processing your application; providing false or fraudulent information may subject you to penalties. Routine uses of this information include giving it to the Department of Justice for civil and criminal litigation, and to cities, states, the District of Columbia, and U.S. commonwealths and possessions for use in administering their tax laws. We may also disclose this information to other countries under a tax treaty, to federal and state agencies to enforce federal nontax criminal laws, or to federal law enforcement and intelligence agencies to combat terrorism. Catalog Number 27939C Form (Rev )

9 Internal Revenue Manual Federal Tax Liens Page 1 of 11 2/23/2014 Part 5. Collecting Process Chapter 17. Legal Reference Guide for Revenue Officers Section 2. Federal Tax Liens Federal Tax Liens Federal Tax Liens Overview The General Tax Lien Filing Notice of the Federal Tax Lien Collection Due Process Property to Which the Tax Lien Attaches Priority of Tax Liens: Specially Protected Competing Interests Manual Transmittal December 23, 2013 Purpose (1) This transmits revised IRM , Legal Reference Guide for Revenue Officers, Federal Tax Liens. Background This section provides procedures for perfecting a federal tax lien and outlines the major issues regarding the types of property subject to the federal tax lien and the status of the federal tax lien verses other competing liens with respect to that property. It also outlines the law and taxpayer rights governing the release of the federal tax lien, discharge of property from the lien, or other types of relief from the lien. Material Changes (1) Editorial Change: IRM (1) - Rev. Proc , I.R.B. 537 adjusts yearly amount for calendar year 2014 of Persons Against Whom a Federal Tax Lien Is Not Valid regarding personal property purchased in a casual sale to less than $1,490. (2) Editorial Change: IRM (2) - Rev. Proc , I.R.B. 537 adjusts yearly amount for calendar year 2014 of Persons Against Whom a Federal Tax Lien Is Not Valid regarding mechanic's lien for repair or improvement of certain real property to $7,470. Effect on Other Documents This supersedes IRM dated March 27, Audience SB/SE Revenue Officers. Effective Date ( ) Dretha M Barham Director, Collection Policy Small Business/Self-Employed ( ) Federal Tax Liens Overview 1. This section first explains how the federal tax lien arises, its duration, and the effect of filing a Notice of Federal Tax Lien (NFTL). The text then discusses the priority disputes between the federal tax and competing liens. The text next discusses the different methods for seeking relief from the federal tax lien, including subordination, releases, and certificates of discharge. The section ends with a discussion of the estate tax lien and the gift tax lien ( ) The General Tax Lien 1. The law generally defines a lien as a charge or encumbrance that one person has on the property of another as security for a debt or obligation. Essentially, this concept can be reduced to a simple metaphor i.e., a special "sticker" similar to what a moving company puts on the furniture, boxes, and other contents of a house when it takes the owner s property from one place to another. The lien (or "sticker" ) does not change the ownership or other qualities of the property to which it is affixed; it merely identifies the property as having some kind of claim against it. 2. Liens may be divided into three general categories: common-law liens, consensual liens, and statutory liens. This section deals with the statutory liens provided for by the Internal Revenue Code. The principal lien considered in this section is the "general" tax lien, sometimes referred to as the assessment or "secret" lien. The general tax lien is provided for by IRC 6321 and is a very broad lien; it generally encompasses all of the taxpayer s property or rights to property as security for a tax liability. 3. In addition to the general tax lien, there are two special liens for estate and gift taxes which arise at the date of death or the date of the gift, respectively. These liens are provided for by IRC Special estate tax liens applicable to cases involving certain closely held business or farm or qualified family-owned business property are provided for by IRC 6324A, IRC 6324B, and IRC 2057(i)(3)(P), respectively. Questions concerning these liens should be referred to Area Counsel. For more information on the Estate Tax Lien, see IRM ( )

10 Department of the Treasury INTERNAL REVENUE SERVICE Guidelines for Processing Notice of Federal Tax Lien Documents CONTENTS IRS Contact Information... 2 Centralized Lien Operation... 2 The Federal Tax Lien Process... 3 Procedures for a Tax Lien Release and Request for Balance Due... 7 Information for Recording Lien Documents... 9 Social Security Number Redaction for Lien Documents Payment Process for Recording Lien Documents Appendix A, Recording Office Notification to IRS Appendix B, Certificates Related to Notices of Federal Tax Lien Appendix C, Researching Taxpayer Index Appendix D, Additional Resources...19 This document is intended to provide information about the centralized IRS lien processes and to ensure that federal tax lien documents are timely filed, properly recorded, and their filing fees promptly paid. Any names used for examples or illustrations in this publication are fictional and do not represent any real persons or entities. Updates have been made throughout this document. Notable changes since the last revision include: Pg 3 Refiling a Notice of Federal Tax Lien Pg 5 Withdrawal of Notice of Federal Tax Lien after Release Pg 6 Notice of Federal Estate Tax Lien Pg 10 Lost Notices of Federal Tax Lien Pg 10 Archiving/Purging Federal Tax Lien Documents Pg 14 Treasury Offset Program Pg 17 Researching Taxpayer Index This document is current through the publication date. Changes that may occur after the publication date will be communicated to the impacted recording office(s) and will be included in the next revision of this document. The most current revision of this document can be found at Note: This document is NOT for recordation. Internal Revenue Service, Department of the Treasury Publication 1468 ( ), Catalog Number 26468Q

11 IRS CENTRALIZED LIEN OPERATION CONTACT INFORMATION Please contact the Centralized Lien Operation with any questions or concerns regarding lien documents using the following information: Mailing address: Internal Revenue Service Centralized Lien Operation P.O. Box Stop 8420G Cincinnati, OH Toll free phone number for taxpayers: Toll free phone number for recording offices: CENTRALIZED LIEN OPERATION The Centralized Lien Processing Operation at the Cincinnati IRS Campus is part of the Small Business/Self-Employed (SB/SE) Campus Compliance Services Operations (CCSO) Division. Employees in this department send out Notices of Federal Tax Lien to recording offices for filing. They also process requests for all notices of lien and releases. Employees handle telephone inquiries and correspondence from taxpayers, their representatives and recording offices. They also assist IRS field personnel with processing certain lien documents related to the Notice of Federal Tax Lien such as amendments, withdrawals, refiles, and revocations. The Centralized Lien Operation staff is authorized by the IRS to contact recording offices for the purpose of resolving problems concerning the filing of Notices of Federal Tax Lien, Notices of Federal Estate Tax Lien, and related documents. They are authorized access to all federal tax information contained in, and related to, such notices of lien and related documents. Recording offices may disclose information contained in such notices of lien and documents, to the extent necessary to resolve any problems, with and only with those employees. Guidelines for Processing Notice of Federal Tax Lien Documents 2

12 THE FEDERAL TAX LIEN PROCESS Definition of a Federal Tax Lien The federal tax lien gives the IRS a legal claim to all of the taxpayer s property for the amount of the tax liability. The federal tax lien arises when the tax liability has been assessed, a demand is made for its payment, and the taxpayer does not pay it. Filing a Notice of Federal Tax Lien A Notice of Federal Tax Lien is a document filed with the local recording office that identifies tax liabilities owed by the taxpayer. Each notice of lien document can reflect up to 15 different tax liabilities that have been assessed. Filing the Notice of Federal Tax Lien (or notice of lien ) is necessary to establish priority rights against certain other creditors. If the taxpayer owes money to other creditors, they may also hold liens or secured rights against a taxpayer s assets. By filing the Notice of Federal Tax Lien, other creditors are put on notice that the United States government has a claim against all property, and any rights to property, of the taxpayer. This includes property owned at the time the notice of lien is filed or acquired thereafter. This notice is used by courts to establish priority in many situations, including bankruptcy proceedings or sales of real estate. It is critical that local recording offices ensure that Notices of Federal Tax Liens are promptly filed and properly recorded. Failure to file and properly record the notice of lien in the local recording office may negatively impact the United States, persons with an interest in the taxpayer s property, creditors that rely on the public record, and the taxpayer in general. Proper handling of the notice of lien is extremely important. Refiling a Notice of Federal Tax Lien Generally the IRS can pursue collection of a tax liability up to 10 years from the date it was assessed. A Notice of Federal Tax Lien may be filed any time within that 10-year period. There are certain events that may extend the time period for collection beyond 10 years. To continue its effectiveness, the notice of lien may be refiled with a Notice of Federal Tax Lien Refile. Timely refiling ensures the IRS retains its priority in relation to the taxpayer s property. The notice of lien contains a column titled Last Day for Refiling that shows when a refile must be filed for each liability listed. This date, which is established by law, is 10 years from the date the liability was assessed plus 30 days. Subsequent refile deadlines, if applicable, are 10 years after the expiration of the previous refile period. There may be instances of notices of lien being filed with showing n/a as the Last Day for Refiling. Although not specifically stated, the time period for refiling that notice of lien is the same as any other notice of lien. Releasing a Lien The IRS issues a Certificate of Release of the Federal Tax Lien no later than 30 days after: the taxpayer satisfies the tax liability (including tax, penalty, interest, and other additions) or the liability becomes legally unenforceable; or the IRS accepts a bond guaranteeing payment of the debt. Guidelines for Processing Notice of Federal Tax Lien Documents 3

13 After a Notice of Federal Tax Lien is filed, the IRS cannot issue a Certificate of Release of Federal Tax Lien until a condition for release, as noted above, is met. The taxpayer must also pay all fees that a recording office charges to file and release the lien. Self-Releasing Liens A federal tax lien usually releases automatically 10 years after a tax is assessed if the statutory period for collection has not been extended and the IRS does not extend the effect of the Notice of Federal Tax Lien by refiling it. When a lien is self-released, the Notice of Federal Tax Lien itself is the release document. The lien is self-released if: the date for refiling has passed, and the IRS has not refiled the Notice of Federal Tax Lien. Taxpayers should check the column titled Last Day for Refiling on the Notice of Federal Tax Lien to determine if the lien is self-released. The IRS recommends that recording offices provide the requestor with a copy of the Notice of Federal Tax Lien and identify the self-releasing language, which is directly under the name and address on the lien document. Note that since a notice of lien may include multiple liabilities, each will have its own self-release point. The notice of lien will not be considered fully released until all the liabilities shown have been satisfied or self-released. Partial Releases Many Notices of Federal Tax Lien are filed showing more than one taxpayer. These are situations where the tax liability is owed by more than one person. Occasionally, one of the persons shown on the notice of lien resolves all or part of their liability, but the other person(s) shown on the notice of lien still owes the liability. In these situations, a Certificate of Release of Federal Tax Lien annotated Partial may be issued. The Partial release document removes only the person identified from the effects of the lien and only with respect to the liability(s) specified. The lien remains in full effect against the other person(s) shown on the notice of lien. Similar to the above instance, many Notices of Federal Tax Lien show more than one tax liability because the taxpayer owes multiple liabilities. Occasionally, some, but not all, of the liabilities shown on the notice of lien are satisfied, but the remainder of the liabilities are still owed. Although the IRS normally waits for all the liabilities on the notice of lien to be satisfied before releasing the lien, there are circumstances where a Certificate of Release of Federal Tax Lien annotated Partial may be issued only for the liabilities satisfied. Such a Partial release document only removes the effects of the lien relative to the tax liabilities specified. The lien otherwise remains in full effect. Care should be taken in recording a Partial release document so it is not confused with a full release of the lien. Revocation of Release of Notice of Federal Tax Lien If the IRS erroneously issues a Certificate of Release of Federal Tax Lien, issues a release in connection with a collateral agreement associated with an offer-in-compromise that has been breached, or does not timely refile the notice of lien thus allowing it to inadvertently self-release, the IRS may revoke the release. Guidelines for Processing Notice of Federal Tax Lien Documents 4

14 A Revocation of Certificate of Release of Federal Tax Lien is filed with the recording office as part of the process to reinstate the federal tax lien. Usually a new Notice of Federal Tax Lien is then filed to again to put the public on notice of the IRS claim on the taxpayer s property. When a lien release is revoked, the federal tax lien becomes effective as of the date it is reinstated, not the date when the lien originally arose. Similarly, the Notice of Federal Tax Lien is effective as of the date when the new notice of lien is filed, not the original filing date. In some situations, a Notice of Federal Tax Lien may be filed for the same tax liabilities in multiple recording offices. For example, the taxpayer owns real property in multiple jurisdictions. If the lien is erroneously released in one location, it effectively extinguishes the lien in all locations. In these situations, the IRS must file a Revocation of Certificate of Release of Federal Tax Lien in all the locations where a similar Notice of Federal Tax Lien was filed. Therefore, on occasion a recording office may receive a Revocation of Certificate of Release of Federal Tax Lien even though its records do not show the lien as released. When this occurs, the Revocation document must still be processed. Withdrawal of Notice of Federal Tax Lien The IRS may withdraw a filed Notice of Federal Tax Lien if certain provisions found in the Internal Revenue Code are established The IRS files the Withdrawal of Filed Notice of Federal Tax Lien with the applicable recording office, provides a copy of the withdrawal certificate to the taxpayer, and, if the taxpayer sends a written request, sends a copy to any credit reporting agency, financial institution, or other creditor the taxpayer indicates. Taxpayers may apply for a withdrawal using IRS Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. Withdrawal of Notice of Federal Tax Lien After Release The IRS may withdraw a Notice of Federal Tax Lien after it has been released if the: Notice was filed prematurely or not according to IRS procedures; or Withdrawal would be in the best interest of the taxpayer and the government. The IRS processes the withdrawal after release in the same manner that it does other withdrawals. Certificate of Discharge of Property from the Federal Tax Lien The federal tax lien attaches to all the property of the taxpayer. At times it may be appropriate to remove (or discharge) a specific piece of the property from the effects of the federal tax lien. Most often this occurs when the taxpayer is transferring ownership of property subject to a Federal tax lien to a third party purchaser and the interests of the United States are provided for in the transaction. When certain conditions are met, the IRS can issue a Certificate of Discharge of Property from the Federal Tax Lien. Each certificate of discharge specifies the property that is being removed from the effects of the federal tax lien. It is important to note that a certificate of discharge does not affect the life of the Notice of Federal Tax Lien. It does not extinguish the tax liability, it does not remove the federal tax lien from other affected property, nor does it preclude the IRS from determining additional tax or penalties. A certificate of discharge only removes the specifically described property from the effects of the lien. Guidelines for Processing Notice of Federal Tax Lien Documents 5

15 The taxpayer may apply for a certificate of discharge following the instructions in IRS Publication 783, Instructions on How to Apply for a Certificate of Discharge of Property from the Federal Tax Lien. In certain circumstances, a third party may also request a certificate of discharge. Certificate of Subordination of Federal Tax Lien Creditors may refuse to extend credit to the taxpayer unless they are assured their encumbrance will have priority over the federal tax lien. For example, a taxpayer is trying to obtain a second mortgage but there is a notice of lien against the taxpayer that would give the IRS a priority over the mortgage. Subordination is the process where a federal tax lien becomes secondary to another encumbrance with regard to specific property. When certain conditions are met, the IRS can issue a Certificate of Subordination from the Federal Tax Lien. Each certificate of subordination specifies the encumbrance that is being given priority over the federal tax lien and the property on which the IRS is subordinating its interest. Taxpayers may apply for a subordination following the instructions in IRS Publication 784, How to Prepare Application for Certificate of Subordination of Federal Tax Lien. Certificate of Nonattachment of Federal Tax Lien If a third party believes a Notice of Federal Tax Lien incorrectly appears to have been filed against them, the third party can request a Certificate of Nonattachment of Federal Tax Lien. This typically occurs when the name of the third party is similar or identical to the name of the taxpayer shown on the Notice of Federal Tax Lien. The certificate of nonattachment specifies the Notice of Federal Tax Lien involved, the impacted third party, and normally the property believed to be attached by the federal tax lien. If it is later determined that the federal tax lien did attach the property described, the certificate of nonattachment may be revoked in the same manner that a certificate of release is revoked. Third parties may apply for a nonattachment following the instructions in IRS Publication 1024, How to Prepare an Application for Certificate of Nonattachment of Federal Tax Lien. Notice of Federal Tax Lien against a Nominee or Alter Ego Occasionally, the IRS finds that property of the taxpayer is being held in the name of a third party. When the circumstances support the finding, the IRS may determine that a Notice of Federal Tax Lien should be filed to encumber the property. A Nominee Notice of Federal Tax Lien is filed using the standard notice of lien form but is annotated to indicate the situation. The name line of the form reflects the third party s name and identifies them as a nominee of the taxpayer. Also, the specific property being attached by the lien is normally identified in the body of the form or on an attachment. An Alter Ego Notice of Federal Tax Lien is likewise filed using the standard form. The name line reflects the third party s name and identifies them as an alter ego of the taxpayer. Alter ego notices of lien are not property specific so there is no identification of the property involved. Notice of Federal Estate Tax Lien A federal estate tax lien arises when an individual dies. It gives the IRS a claim on the assets that are part of the decedent s gross estate that are required to be reported on the Estate Tax Return. Like the federal tax lien described above, the federal estate tax lien is a statutory lien that does not need to be filed to be effective. Guidelines for Processing Notice of Federal Tax Lien Documents 6

16 The Notice of Federal Estate Tax Lien is filed to protect the interests of the United States. Although generally filed in the same manner, this lien document differs significantly from the more common Notice of Federal Tax Lien. The Notice of Federal Estate Tax Lien is a property specific lien and describes the property it attaches. There is no designated time limit for the Notice of Federal Estate Tax Lien, so it does not expire after a certain period of time. It often remains valid for more than 10 years from when it is filed. Also, the Notice of Federal Estate Tax Lien does not contain self-releasing language and it does not need to be refiled to remain valid. A Notice of Federal Estate Tax Lien is valid until a certificate of release is filed. Certificate of Discharge for Estate Tax Liens When an estate is transferring ownership of property subject to the recorded or unrecorded statutory estate tax lien, it may apply for a certificate of discharge. Provided certain conditions are met, the estate may receive a Certificate Discharging Property Subject to Estate Tax Lien. In circumstances where the estate tax lien is unrecorded, the recording office may file this type of discharge as a stand alone document. Persons applying for a certificate of discharge in estate tax lien situations can follow the instructions on Form 4422, Application for Certificate Discharging Property Subject to Estate Tax Lien. Other Lien Documents The IRS may issue other lien documents to address specific situations. See Appendix B for a list of lien documents authorized by the IRS. Documents such as Certificates of Release of Federal Tax Lien and Withdrawal of Filed Notice of Federal Tax Lien are normally filed by the IRS. In certain cases, the IRS may provide originals of these documents to a taxpayer or third party representative for filing. Other documents such as Certificates of Discharge of Property from the Federal Tax Lien and Certificates of Subordination of Federal Tax Lien are normally filed by the taxpayer or third party with an interest in the situation. If there are any concerns regarding the legitimacy of a lien document presented for filing, please contact the Centralized Lien Operation for verification of the document. Guidelines for Processing Notice of Federal Tax Lien Documents 7

17 PROCEDURES FOR A FEDERAL TAX LIEN RELEASE AND REQUEST FOR BALANCE DUE The amount on the Notice of Federal Tax Lien is the assessed amount at the time of filing the document. This amount will remain a matter of public record until the notice of lien is satisfied. An updated lien payoff or balance due amount may be requested from the Centralized Lien Operation. The IRS will issue a payoff letter to taxpayers or to third parties such as taxpayer representatives, lenders, and escrow or title companies, requesting a balance due or payoff statement with the current amount that must be paid before the IRS releases the lien. Third parties must submit their request in writing accompanied by a properly completed Form 8821, Tax Information Authorization, signed by the taxpayer. Without a Form 8821, the IRS cannot disclose taxpayer information to third parties. The Form 8821 must address each tax period on the notice of lien and be received by the IRS within 60 days after the taxpayer signs and dates it. When it is timely received, a properly completed Form 8821 remains valid until it is revoked by the taxpayer. Payoff requests can be made by: Phone: Fax: Mail: Internal Revenue Service Centralized Lien Operation P. O. Box Stop 8420G Cincinnati, OH Payoff computations may take up to 14 calendar days to process. The successfully completed fax transmission, or mailing certification, serves as the acknowledgement of the request. All requests are worked in the order in which they are received. Requestors should allow 14 days before following up on requests. Two copies of all payoff letters are mailed to the requester. One copy of the payoff letter must be returned with the payment to ensure proper application and timely release of the lien. To ensure expedited processing the payment must be sent to the address identified on the payoff letter. Payments should be made payable to the United States Treasury. Guidelines for Processing Notice of Federal Tax Lien Documents 8

18 INFORMATION FOR RECORDING LIEN DOCUMENTS The Centralized Lien Operation toll free phone number for recording offices is This telephone number is reserved for recording offices only. Recording offices should record all federal tax lien documents promptly. Taxpayers, the United States, and other creditors may be harmed when recording offices do not record lien documents in a timely manner. Recording offices sometimes return documents unrecorded or set them aside, which can negatively impact the IRS and others with an interest in the taxpayer s property. Recording offices should contact the Centralized Lien Operation at the phone number above to resolve recording issues. Lien documents should not be returned to the IRS unrecorded. Form and Content Internal Revenue Code 6323(f) states in part: The form and content of the [tax lien document] shall be prescribed by the Secretary. Such notice shall be valid notwithstanding any other provision of law regarding the form or content of a notice of lien. Therefore, federal law requires that recording officials must accept lien documents as presented and record them in a timely manner, even if they are not in a locally prescribed format or do not conform to local regulations. Requiring changes to margins, paper size, blank spaces, label insertions, redactions of social security numbers, etc., made by state or local regulation are contrary to this provision. Cover Sheet IRC 6323(f) governs the form and content of federal tax lien documents. Recording officials cannot refuse to record federal tax lien documents because of local requirements such as cover sheets, document margins, or additional space for recording data. State and local regulations cannot override this provision, and recording officials cannot refuse to record documents without cover sheets. Original or Facsimile Signature Neither the Internal Revenue Code nor the Treasury Regulations require affixing original or facsimile signatures to federal tax lien documents. State and local law requirements for signatures do not apply. The IRS under provisions of IRC 6323(f) has the authority to make signatory determinations. Recording offices must ensure lien documents are recorded with or without original signatures. Taxpayer Name Issues A Notice of Federal Tax Lien is valid if it contains the taxpayer's name as it appears in IRS records and a reasonable inspection of the recording index would reveal the existence of the lien. The taxpayer's name as it appears on the notice of lien need not match the name as it appears in the Secretary of State record. For example, if the IRS files a Notice of Federal Tax Lien showing the taxpayer s name as John Doe but local records list the taxpayer s name as Jonathan Doe, the notice of lien should be filed as presented. The recording office should not make modifications to the notice of lien unless directed to by the IRS. Guidelines for Processing Notice of Federal Tax Lien Documents 9

19 The manner in which the names on the Notice of Federal Tax Lien are shown in a recording office s name index is determined by the recording office. The IRS can only require that the names be indexed in such a manner that the notice of lien may be readily found by a third party researching the taxpayer. See Appendix C for examples of common name line situations on the Notice of Federal Tax Lien and how third parties may research for them. Second Copy of the Notice of Federal Tax Lien The IRS generally provides recording officials with two copies of all Notice of Federal Tax Lien documents. Copies are clearly designated as Recording Office and IRS. One copy the Recording Office copy is for recordation, retention or disposal by the recording office. It is important that only one recording occur per set of documents sent. The second copy the IRS copy is returned with the appropriate recording data to the Centralized Lien Operation. Please use the form Transmittal Sheet for Required IRS Action (See Appendix A of this document) and mail to the address listed. Recording offices that do not require a second copy for their records should contact the Centralized Lien Operation at to request removal of the second copy. Lost Notices of Federal Tax Lien After a new Notice of Federal Tax Lien is filed, the IRS updates its Automated Lien System with the recording data received from the recording office. If no recording data has been input within a certain time period, the system alerts the Centralized Lien Operation of the potential lost lien. An IRS employee researches each lost lien to determine if the recording office received and recorded the notice of lien or if the recording information was not returned to, or not updated by, the IRS. Generally, the IRS researches the matter using available electronic tools, but occasionally it is necessary to contact the recording office and ask for assistance. If it is found that a recording office did not receive or record the notice of lien, an adjustment may be needed to the recording fees previously paid or a replacement Notice of Federal Tax Lien may be filed. Illegible Unrecorded Documents Recording offices are asked to promptly record all federal tax lien documents. If the documents presented for filing are illegible, contact the Centralized Lien Operation at for assistance. Releases with Insufficient Notice of Federal Tax Lien Recording Information Certificates of Release of Federal Tax Lien are filed showing information cross-referencing the original Notice of Federal Tax Lien. Occasionally, this cross-referencing information is insufficient for the recording office to identify the original notice of lien. Prior to returning unrecorded certificates of release, the recording office should contact the Centralized Lien Operation to try to resolve the issue. If it cannot be immediately resolved, return the certificate of release using Appendix A for missing or incorrect liber/book and page number of the Notice of Federal Tax Lien. Archiving/Purging Electronic Databases of Released or Expired Documents Lien documents filed by the IRS must be part of the public record for at least the period they are active. After a lien document has been released or otherwise expires, the retention of the document in the public record becomes subject to the archive/purge schedule of the individual recording office. Guidelines for Processing Notice of Federal Tax Lien Documents 10

20 Generally, a Notice of Federal Tax Lien is active for ten years and thirty days from the date the tax liability is assessed. (See Self-Releasing Liens section on page 4 of this publication.) If the notice of lien is refiled, it may remain active up to an additional 10 years. Any lien documents filed in association with that notice of lien (for example, certificate of discharge, certificate of subordination, Amended Notice of Federal Tax Lien, etc.), remain active for the life of the notice of lien. A Notice of Federal Estate Tax Lien does not have the same expiration process nor does it require a refiling to extend its life. The Notice of Federal Estate Tax Lien remains active until a certificate of release is filed for it. A Notice of Federal Estate Tax Lien should not be removed from the public record unless and until a certificate of release is filed. Filing Lien Documents after Archiving/Purging Occasionally the IRS may file a lien document that relates to a Notice of Federal Tax Lien that has already been archived or purged. The IRS cannot mandate how the document is recorded; only that it is recorded. Whether the recording office cross-references the document to the archive record, reactivates the archive record, or just files it as a stand alone document is to the discretion of the recording office. Electronic Lien Filing System The electronic lien filing (ELF) process enables the IRS and the local recording office to electronically process the Notice of Federal Tax Lien and lien release data in a more cost effective and timely manner. Presently there are only a few locations where electronic filing is available. Unfortunately, the IRS is not able to expand the process beyond those locations at this time. Guidelines for Processing Notice of Federal Tax Lien Documents 11