August 22, 2022

When Do Federal Tax Liens for Personal Property Attach?

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A recent bankruptcy court ruling, In re Stephenson, maintained that under Federal and Tennessee law (at least in the context of claim priority in bankruptcy), an IRS tax “lien does not attach to personal property and gain secured status until it is properly filed in the office of the register of deeds of the county where the taxpayer resides.”1 So, while the bankruptcy judge agreed that the federal tax lien “arose in favor of the IRS as to [Ms. Stephenson’s] personal property on the date of assessment, the tax lien did not attach to her personal property” because the notice of the lien was never filed in her place of residence.2 As the judge also noted, this conundrum illustrates a statutory gap, recognized as early as 1975 in Corwin Consultants, Inc. v. Interpublic Group of Cos., Inc., that Congress has yet to close.3

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Background

From 2016 through about half of 2018, Ms. Stephenson (Debtor) was a transient with unpaid federal taxes. She moved so frequently from city to city and state to state—sometimes in an RV—that she used her mother’s Benton County, Tennessee address for employment and tax return purposes. However, she was never a resident at that address during those years. Indeed, the longest period of time during that timeframe that she spent at her mother’s home was a week-long visit. Finally, in June of 2018, Debtor accepted a teaching position and settled in Shelby County, Tennessee.

Before Debtor filed her 2021 bankruptcy tax petition, a Federal tax lien arose on June 6, 2016 (the date of assessment for her 2015 tax liability). In 2018, since Debtor’s 2017 jointly filed tax return reflected her mother’s Benton County address, the IRS filed the Notice of Federal Tax Lien (NFTL) in that same county—not in Debtor’s actual county of residence, Shelby County. 

Based on the tax lien, the IRS asserted a secured claim on Debtor’s personal property. Debtor objected, claiming no secured claim exists, because the NFTL was not properly filed in her county of residence per Internal Revenue Code (IRC) §6323(f).

Law and Analysis

The court first considered that, per IRC §6321, a federal tax lien “arises”:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.

Citing In re Eschenbach, the court then noted that the lien “attaches” upon the filing of the notice of lien.4 Moreover, the court clarified that the filing requirement for the lien recordation is found in IRC §6323(f), which provides that:

(f) Place for filing notice; form 
(1) Place for filing. - The notice [of a tax lien imposed by IRC §6321] shall be filed – 
(A) Under State laws. . . .
(ii) Personal Property. - In the case of personal property, whether tangible or intangible, in one office within the State (or the county, or other governmental subdivision), as designated by the laws of such State, in which the property subject to the lien is situated, except that State law merely conforming to or reenacting Federal law establishing a national filing system does not constitute a second office for filing as designated by the laws of such State . . . .
* * * 
(2) Situs of property subject to lien. - For purpose of paragraph[ ] (1) . . . property shall be deemed to be situated . . . 
(B) Personal Property. - In the case of personal property, whether tangible or intangible, at the residence of the taxpayer at the time the notice of lien is filed.

Thus, the court answered the question, “Where is personal property actually situated?” by providing the answer spelled out in §6323(f)(2)—i.e., that the location is the taxpayer’s residence at the time the lien is filed. And the court was clear that determining a taxpayer’s residence is a question of fact which considers various factors, including, among other factors:

the taxpayer's physical presence as an inhabitant and not a mere transient, . . .; the permanence of that presence ...; the reason for [her] presence ...; and the existence of other residences.5

Ultimately, based on factors such as these, the court was clear that the NFTL was not secured, because Benton County was not Debtor’s place of residence. The court agreed with Debtor that the tax lien did not attach to her personal property—it was a general unsecured claim, because it should have been filed in Shelby County.

Editor’s Note:

Readers may distinguish In re Stephenson from decisions like that in North Carolina Joint Underwriting Assoc. v. Long, where courts have determined that once the IRS files a tax lien in the debtor’s place of residence: (1) the lien attaches to all of the debtor’s personal property wherever it is located—i.e., not only the property that was located at their residence when the lien was filed, and (2) the IRS is not then required to refile the tax lien if the debtor subsequently changes residence (i.e., the IRS tax lien remains “perfected in and attached to” all personal property even if the debtor moves to another state).6

Unlike the debtor in In re Stephenson, the debtor in North Carolina Joint Underwriting Assoc. v. Long had a residence in the place the tax lien was filed and at the time the lien was filed. When that is the case, the IRS is able to satisfy the requirements of IRC §6323(f)(1), (2) and file in the appropriate office of the state where the property is situated—which in the case of personal property is the debtor’s residence. Instead, in the matter of In re Stephenson, the court was clear that Debtor never resided in the county where the IRS filed. Thus, the NFTL was ineffective/invalid and entire IRS claim was unsecured.

Frost Law understands the interplay of bankruptcy and federal tax liens. If you need help in a situation like this, or any bankruptcy matter, our team can help. Contact us at (410) 497-5947 or schedule a confidential consultation with our brief contact form.

Footnotes

  1. No. 21-22684-H, 2022 BL 239716 at 5 (Bankr. W.D. Tenn. June 17, 2022). Note that outside the context of claim priority in bankruptcy—once the bankruptcy matter has concluded—the IRS is able to levy/seize property if the tax liability is not paid or discharged.
  2. Id.
  3. 512 F.2d 605, 610 (2d Cir. 1975).
  4. 267 B.R. 921, 923 (Bankr. N.D. Tex. 2001); IRC §6323(a).
  5. In re Stephenson at 3.
  6. 2008-1 USTC Para. 50,183 (E.D.N.C. 2008).
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