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Internal Revenue Service Helps Taxpayers By Raising The Notice of Federal Tax Lien Threshold

A Notice of Federal Tax Lien (NFTL) can tarnish a taxpayer’s credit score and place an encumbrance on their property.  Fortunately, the IRS has provided relief for those owing less than $10,000.00.

In March 28 2011, the IRS issued interim guidance regarding an increase to the threshold for filing Notices of Federal Tax Lien (NFTL).

A federal tax lien attaches to “all property and rights to property, whether real or personal, belonging” to the taxpayer. 26 U.S.C. §6321.  The lien imposed by §6321 arises when an assessment is made and continues until either the taxpayer’s liability is satisfied or the statute of limitations on collection expires.  26 U.S.C. §6322.  The lien attaches to the taxpayer’s property and rights to property as of the moment the assessment, and once filed, attaches to any property acquires thereafter.

The lien created by §6321 is referred to as a “secret” lien since it arises as a matter of law without the necessity of filing public notice.  The “secret” lien is not effective against any purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor until an NFTL has been filed.

When the NFTL is filed, the Form 668 (Y)(c) is filed at the county courthouse where the taxpayer resides.  The NTFL notifies the public of the type and year of the tax, the date of assessment, and the amount of unpaid back taxes that a taxpayer owes.   The NFTL will be reported on a taxpayer’s credit report which will adversely impact the taxpayer’s credit score.

The March 28, 2011 guidance is significant because it raises the threshold for a NFTL from $5,000 to $10,000 by amending the internal revenue manual  Consequently, more planning strategies are available to protect the taxpayer from a NFTL.  The increased threshold expires on March 28, 2012.

If you are facing the filing of an IRS tax lien and need help contact tax attorney, Todd S. Unger, Esq.  The tax law firm of Todd S. Unger, Esq., LLC is a boutique tax law firm dedicated to resolving IRS and state tax problems.

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