Tax Lien Found Before Closing? What Business Owners and Investors Can Still Do
By:
Daylan A. Nyarko
Insights
Three weeks before closing, the title company calls... A commercial building under contract carries a recorded Notice of Federal Tax Lien tied to the seller's payroll tax balance. The buyer's lender needs answers by Friday.
A hypothetical, for illustration only.
For business owners and high-net-worth investors, an IRS tax lien quickly becomes a financing, transaction, and sometimes personal liability problem.
When a Federal Tax Lien Attaches to Business and Investment Assets
Under IRC Section 6321, a federal tax lien arises automatically once tax is assessed, demanded, and unpaid, and attaches to all of the taxpayer's property and rights to property.
The public Notice of Federal Tax Lien alerts lenders and buyers and opens a short window to request a Collection Due Process hearing, with possible U.S. Tax Court review.
Before a notice is filed, the lien still binds the taxpayer and generally follows the sale proceeds, but a buyer or lender who takes for value before the filing is generally protected. Transfers to insiders or for less than fair value are another matter. If payroll taxes are unpaid, owners and officers may face personal assessment for trust fund taxes.
Does an IRS Tax Lien Take Priority Over Your Lender?
A filed notice ranks ahead of unsecured creditors, but generally not ahead of a mortgage, security interest, or judgment lien recorded first. Related-party financing should be documented and perfected through counsel-directed planning.
Selling Commercial Property or Business Assets With an IRS Tax Lien
An IRS tax lien rarely prevents the sale of a commercial building or investment property. If the proceeds cover the balance, the IRS is paid at closing and the lien is released; if they do not, a certificate of discharge allows the sale to close once the IRS receives its share of the equity.
A certificate of discharge (IRC Section 6325(b); Form 14135) can clear the property when the taxpayer's other property subject to the lien is worth at least twice the liability plus any senior liens, when the IRS receives the value of its interest, when that interest has no value, or when the proceeds are paid to it or escrowed. Another owner of the property may also apply.
The process works for commercial buildings and business equipment alike, and a certificate of subordination can make room for a refinancing.
If a lien has surfaced on property under contract, request a confidential assessment before the closing date is at risk.
When to Involve a Federal Tax Lien Attorney
Involve counsel when:
A lien surfaces during a sale, refinancing, or capital raise.
Revenue Officer is assigned, or levies are threatened.
The Collection Due Process deadline is running.
Frequently Asked Questions
How long does an IRS lien discharge take?
Does a certificate of discharge eliminate the tax debt?
Discuss Your Transaction Confidentially
Nyar Tax represents business owners, executives, and high-net-worth individuals in IRS collection and lien matters, examinations and appeals, employment tax disputes, and U.S. Tax Court litigation.
Daylan A. Nyarko handles federal tax matters nationwide from the firm's Austin office. If a lien is affecting a transaction, request a confidential assessment, or call 1.888.995.2015 if a deadline is approaching
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