ILNews

IBA: Tax Liens Live After Debts, Clients Die

Back to TopCommentsE-mailPrintBookmark and Share

By Adam D. Christensen

In Shakespeare’s The Tempest, the drunken butler, Stephano, quips, “He that dies pays all his debts.” Obviously, the Bard’s fool had no experience with tax liens, which may cause as many problems for clients during and after life as the underlying debt itself.

Tax liens are filed when a taxpayer (individual or corporate) owes federal or state taxes from income, excise, employment, or sales tax. The taxing agencies that issue tax liens, the Internal Revenue Service and the Indiana Department of Revenue, assert that liens protect the government’s interest in a delinquent taxpayer’s property and increase the likelihood of collection. Given the scope and permanence of tax liens, these goals are doubtlessly met.

However, the unintended consequences of tax liens can serve not only as a complication but a blockade to collection and may cause the taxpayer irreparable harm along the way.

Tax liens attach to all assets owned by the taxpayer at the time the lien is filed and to any assets acquired afterward. Homes and other real estate, lines of credit, vehicles, equipment, even some investments may be effected. What’s more, tax liens stick to these assets until the underlying tax is paid in full regardless whether the taxpayer can afford to pay the debt or not.

By design, a tax lien restricts an owner’s ability to sell or transfer assets by clouding title. When the asset is sold, the government is entitled to an amount equal to its interest up to full, unencumbered value of the asset. Without payment, the lien remains and the asset cannot be transferred with clear title. Without clear title, the sale may be challenged in court and in due course reversed.

What’s more, Indiana is a “first to file” state with respect to secured interests, meaning the tax lien falls in line behind any prior secured interests in the asset, such as a mortgage. In foreclosure and property tax sale cases, a tax lien effectively wipes out any equity that may have been used to modify a mortgage or pay property taxes to avoid repossession.

Tax liens also impair a taxpayer’s ability to refinance. In addition to muddying priority and sapping equity, tax liens are listed on credit reports and can decrease a taxpayer’s credit rating by 100 points or more. Alarmingly, even seven years after the debt is paid in full, a notation showing a prior lien may negatively affect a taxpayer’s credit and ability to borrow.

For taxpayers working in fields such as finance, real estate, and law, tax liens can be ruinous. When a tax lien is filed, these people are at risk of losing their professional licenses, their ability to seek new employment, and even their current jobs.

Finally, and despite Stephano’s assertion, tax liens remain attached to assets even if the taxpayer dies before satisfying the debt. The liens entitle the taxing agency to an interest in the taxpayer’s estate presumably so the taxpayer can repay his debt from beyond the grave.

Often, tax liens are viewed by many practitioners as akin to judgment liens. However, tax liens may be more devastating because of the speed with which they are issued.

Feasibly, a tax lien may be filed roughly 90 days after tax assessment and without a court order. IRS procedures authorize automated lien filings when an unpaid tax balance is greater than $5,000. The IDR has no such restrictions and may file a lien without regard to the balance amount. Compare this to the lengthy, burdensome, and costly process necessary to secure a judgment lien.

In the past decade, the IRS has increased tax lien filings by 550%, and, though Indiana does not publish statistics relating to tax lien filings, it is likely the IDR has kept pace. Practitioners today are more likely than ever to encounter tax lien issues. Though attorneys may not be able to cure all the harms caused by a tax lien, here are four tips to ensure the damage is minimal.

The IRS may not file a lien for unpaid balances up to $25,000 for individuals and $10,000 for corporate entities if the taxpayer enters into an agreement to pay the debt in 60 or 24 months, respectively.

New IRS guidelines allow for taxpayers to request removal of tax liens if the underlying balance is reduced below these threshold amounts and the taxpayer agrees to have the agreement payments debited directly from a bank account.

Filing Form 12277 once a tax debt is paid will cause the IRS to “withdraw” a lien, rather than “remove” it, and will immediately expunge the lien from the taxpayer’s records.

Requesting lien subordination may not only give a taxpayer a chance to use equity to pay tax debt, it may help challenge the lien filing in Tax Court (Alessio Azzari v. Commissioner, 136 T.C. 9 (2011)).•

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Call it unauthorized law if you must, a regulatory wrong, but it was fraud and theft well beyond that, a seeming crime! "In three specific cases, the hearing officer found that Westerfield did little to no work for her clients but only issued a partial refund or no refund at all." That is theft by deception, folks. "In its decision to suspend Westerfield, the Supreme Court noted that she already had a long disciplinary history dating back to 1996 and had previously been suspended in 2004 and indefinitely suspended in 2005. She was reinstated in 2009 after finally giving the commission a response to the grievance for which she was suspended in 2004." WOW -- was the Indiana Supreme Court complicit in her fraud? Talk about being on notice of a real bad actor .... "Further, the justices noted that during her testimony, Westerfield was “disingenuous and evasive” about her relationship with Tope and attempted to distance herself from him. They also wrote that other aggravating factors existed in Westerfield’s case, such as her lack of remorse." WOW, and yet she only got 18 months on the bench, and if she shows up and cries for them in a year and a half, and pays money to JLAP for group therapy ... back in to ride roughshod over hapless clients (or are they "marks") once again! Aint Hoosier lawyering a great money making adventure!!! Just live for the bucks, even if filthy lucre, and come out a-ok. ME on the other hand??? Lifetime banishment for blowing the whistle on unconstitutional governance. Yes, had I ripped off clients or had ANY disciplinary history for doing that I would have fared better, most likely, as that it would have revealed me motivated by Mammon and not Faith. Check it out if you doubt my reading of this, compare and contrast the above 18 months with my lifetime banishment from court, see appendix for Bar Examiners report which the ISC adopted without substantive review: https://www.scribd.com/doc/299040839/2016Petitionforcert-to-SCOTUS

  2. Wow, over a quarter million dollars? That is a a lot of commissary money! Over what time frame? Years I would guess. Anyone ever try to blow the whistle? Probably not, since most Hoosiers who take notice of such things realize that Hoosier whistleblowers are almost always pilloried. If someone did blow the whistle, they were likely fired. The persecution of whistleblowers is a sure sign of far too much government corruption. Details of my own personal experience at the top of Hoosier governance available upon request ... maybe a "fake news" media outlet will have the courage to tell the stories of Hoosier whistleblowers that the "real" Hoosier media (cough) will not deign to touch. (They are part of the problem.)

  3. So if I am reading it right, only if and when African American college students agree to receive checks labeling them as "Negroes" do they receive aid from the UNCF or the Quaker's Educational Fund? In other words, to borrow from the Indiana Appellate Court, "the [nonprofit] supposed to be [their] advocate, refers to [students] in a racially offensive manner. While there is no evidence that [the nonprofits] intended harm to [African American students], the harm was nonetheless inflicted. [Black students are] presented to [academia and future employers] in a racially offensive manner. For these reasons, [such] performance [is] deficient and also prejudice[ial]." Maybe even DEPLORABLE???

  4. I'm the poor soul who spent over 10 years in prison with many many other prisoners trying to kill me for being charged with a sex offense THAT I DID NOT COMMIT i was in jail for a battery charge for helping a friend leave a boyfriend who beat her I've been saying for over 28 years that i did not and would never hurt a child like that mine or anybody's child but NOBODY wants to believe that i might not be guilty of this horrible crime or think that when i say that ALL the paperwork concerning my conviction has strangely DISAPPEARED or even when the long beach judge re-sentenced me over 14 months on a already filed plea bargain out of another districts court then had it filed under a fake name so i could not find while trying to fight my conviction on appeal in a nut shell people are ALWAYS quick to believe the worst about some one well I DID NOT HURT ANY CHILD EVER IN MY LIFE AND HAVE SAID THIS FOR ALMOST 30 YEARS please if anybody can me get some kind of justice it would be greatly appreciated respectfully written wrongly accused Brian Valenti

  5. A high ranking Indiana supreme Court operative caught red handed leading a group using the uber offensive N word! She must denounce or be denounced! (Or not since she is an insider ... rules do not apply to them). Evidence here: http://m.indianacompanies.us/friends-educational-fund-for-negroes.364110.company.v2#top_info

ADVERTISEMENT