CTRS CTRS Tax Liens and Levies — Advanced Strategies 1 — Questions and Answers
Question 1: What is a 'Certificate of Discharge' and when would a taxpayer seek one?
- A certificate that removes the federal tax lien from a specific piece of property, commonly sought during a real estate sale to allow the transaction to close (Correct answer)
- A document that permanently releases the taxpayer from all federal tax obligations
- A certificate confirming that all tax liabilities have been paid in full
- A court order discharging tax debts in bankruptcy proceedings
Correct answer: A certificate that removes the federal tax lien from a specific piece of property, commonly sought during a real estate sale to allow the transaction to close
A Certificate of Discharge under IRC §6325(b) removes the federal tax lien from a specific property, allowing the sale to proceed while the lien attaches to the sale proceeds.
Question 2: What is a 'Certificate of Subordination' and how does it benefit a taxpayer?
- It allows a creditor with a junior lien to move ahead of the federal tax lien in priority, enabling the taxpayer to obtain financing they otherwise couldn't (Correct answer)
- It subordinates the taxpayer's obligation to pay the federal tax lien to state tax authorities
- It reduces the amount of the federal tax lien by the amount of subordinate debt
- It transfers the federal tax lien to a related party
Correct answer: It allows a creditor with a junior lien to move ahead of the federal tax lien in priority, enabling the taxpayer to obtain financing they otherwise couldn't
A Certificate of Subordination under IRC §6325(d) causes the federal tax lien to be subordinated to another creditor's lien, allowing the taxpayer to refinance or obtain a business loan when the federal tax lien would otherwise block it.
Question 3: What property is exempt from IRS levy under IRC §6334?
- A minimum amount of weekly wages, unemployment benefits, workers' compensation, certain pension and retirement benefits, and primary home equity under specific conditions (Correct answer)
- All retirement accounts regardless of balance
- The taxpayer's primary residence in all circumstances
- All assets owned jointly with a non-liable spouse
Correct answer: A minimum amount of weekly wages, unemployment benefits, workers' compensation, certain pension and retirement benefits, and primary home equity under specific conditions
IRC §6334 provides a list of levy-exempt property including minimum wages (IRC §6334(a)(9)), unemployment benefits, workers' compensation, and certain public assistance payments.
Question 4: What is a 'nominee lien' in the context of federal tax collection?
- A lien the IRS places on property held by a third party (the nominee) who holds it on behalf of the taxpayer to shield it from collection (Correct answer)
- A lien filed in the name of the taxpayer's spouse instead of the actual taxpayer
- A lien that names a fictitious entity as the debtor
- A lien the IRS files in a county where the taxpayer does not reside
Correct answer: A lien the IRS places on property held by a third party (the nominee) who holds it on behalf of the taxpayer to shield it from collection
A nominee lien is filed against property that is legally in someone else's name but beneficially owned by the taxpayer, preventing the taxpayer from using nominees to hide assets from IRS collection.
Question 5: What is the 'wrongful levy' action under IRC §7426 and who can bring it?
- A third party whose property was wrongfully seized by the IRS to satisfy another person's tax debt can bring a wrongful levy action to recover the property or its value (Correct answer)
- The taxpayer themselves can bring a wrongful levy action for any levy they believe is improper
- Only the taxpayer's attorney can bring a wrongful levy action on the taxpayer's behalf
- Only state governments can challenge IRS levies through wrongful levy actions
Correct answer: A third party whose property was wrongfully seized by the IRS to satisfy another person's tax debt can bring a wrongful levy action to recover the property or its value
IRC §7426 allows third parties (not the taxpayer) whose property was wrongfully levied by the IRS to sue for return of the property or its monetary value.
Question 6: What is the standard for the IRS to release a Notice of Federal Tax Lien after full payment?
- The IRS must release the lien within 30 days after the liability is fully satisfied or becomes legally unenforceable (Correct answer)
- The IRS has up to 180 days to release a lien after full payment
- Lien release requires a formal taxpayer application and takes 60-90 days
- Liens are automatically released only when the CSED expires, not upon payment
Correct answer: The IRS must release the lien within 30 days after the liability is fully satisfied or becomes legally unenforceable
Under IRC §6325(a), the IRS is required to release a federal tax lien within 30 days after the liability is satisfied or becomes legally unenforceable.
CTRS CTRS Tax Liens and Levies — Advanced Strategies 1
What is a 'Certificate of Discharge' and when would a taxpayer seek one?