After a taxpayer fails to remit payment on an outstanding tax liability and the IRS issues a demand for payment, the Internal Revenue Code imposes a statutory lien in favor of the government on all property and property rights of the taxpayer. I.R.C. § 6321. The lien dates back to the date of assessment and continues until the liability is satisfied or becomes unenforceable. I.R.C. § 6322.
Although the lien arises by operation of law, the IRS must file a notice of tax lien (notice) to preserve its priority over other creditors and to put those creditors on notice of the lien. I.R.C. § 6323. Once filed, the IRS must provide written notice to the taxpayer of the filing of the notice and of the taxpayer’s right to a collection due process (CDP) hearing. I.R.C. § 6320.
At the CDP hearing, the taxpayer may raise certain issues, including challenges to the propriety of the filing of the notice. I.R.C. § 6320(c)(2)(A). The IRS may withdraw the notice if one of the following four circumstances are present:
(1) its filing was premature or violated certain administrative procedures; (2) the taxpayer enters into an installment agreement; (3) the withdrawal of the notice will facilitate the collection of the tax; or (4) withdrawal of the notice would be in the best interests of the taxpayer as determined by the National Taxpayer Advocate and the United States. Id. Additionally, the IRS may, at the taxpayer’s request, subordinate the tax lien on specific property by issuing a certificate of subordination or may issue a certificate of discharge for any property subject to a tax lien. I.R.C. § 6325.
The filing of the notice has numerous adverse consequences to the taxpayer, including a precipitous drop in the taxpayer’s credit score and the inability to freely sell assets. Accordingly, it is imperative that the taxpayer or the taxpayer’s representative provide compelling and persuasive arguments and evidence in favor of withdrawing, subordinating, or discharging the tax lien to the IRS during the CDP hearing. Because the Tax Court has indicated in recent opinions that it will give great deference to IRS’ decisions regarding the tax lien relief measures, the presentation of arguments and evidence at the CDP hearing is all the more crucial if the taxpayer desires to withdraw, subordinate, or discharge the tax lien. See Green v. Commissioner, T.C. Memo. 2014-180 (noting that tax lien relief measures in Internal Revenue Code are permissive and that IRS is not generally required to withdraw, subordinate, or discharge the tax lien even where taxpayer meets all conditions of the relevant provision); Walker, P.A. v. Commissioner, T.C. Memo. 2014-187 (noting I.R.C. § 6323(j) provisions are permissive); see also Bergdale v. Commissioner, T.C. Memo. 2014-152 (finding IRS settlement officer did not abuse his discretion where taxpayer failed to provide credible evidence beyond his bare allegations nor detailed argument for withdrawal of notice of tax lien).
Meadows Collier attorneys can assist in ensuring that your best case is presented when requesting tax lien relief during a CDP hearing.