IRS Use of Tax Liens Often Violates its Stated Mission

IRS Use of Tax Liens Often Violates its Stated Mission

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Paul Caron discusses Danshera Cords’ Brandeis Law Review article Lien on Me: Virtual Debtors Prisons, The Practical Effects of Tax Liens and Proposals for Reform, 49 Brandeis L.J. 341 (2011):

This Article discusses the harm that a notice of federal tax lien can cause an individual as a result of the effect of filing a notice of federal tax lien has on an individual’s credit report. Recent evidence indicates that such filings are often made automatically, without consideration of the assets the individual possesses or whether the government is obtaining priority in anything through its filing. That is, in many cases the government may not be increasing the likelihood it will collect the already owed taxes and may even be decreasing the likelihood that the individual against which the notice of federal tax lien is filed will be able to become compliant with their current or future tax obligations.

Even more troubling, if unpaid, such liens may remain on the individual’s credit report forever. This black mark may make it difficult or impossible for the individual to obtain better housing, employment, or otherwise improve their situation in ways that would permit the individual to return to a place in the system where they could positively contribute, as a taxpayer and as a productive member society. Alternatively, these individuals must become part of the underground economy or rely on the social safety net, draining other government resources.

This Article concludes that a number of changes are required. First, notices of federal tax lien must not be issued without a consideration of whether they will increase the likelihood of collecting the tax liability. Second, the Internal Revenue Code must be changed to require a withdrawal of lien, which treats a notice of federal tax lien as having never been filed, after payment of the tax lien because of the changes in the ways that credit reports are used and the harm that can cause to the government and the individual.

Finally, changes are needed to the Fair Credit Reporting Act to require that notices of federal tax lien be removed from an individual’s credit report after the same number of years after the lien becomes unenforceable as other debts because there is no sound policy reason for tax liens to be reported as negative items forever. Indeed such reporting is against both the government’s and individual’s interests.

I agree with everything Ms. Cords and Mr. Caron have said and would only add that when the IRS issues a Notice of Federal Tax Lien without first determining whether the lien will benefit the government or merely damage the taxpayer, it is acting in violation of it’s stated mission to,

[P]rovide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.

If the IRS issues a tax lien in cases where the tax lien won’t help it collect the amount owed, it has not applied the law with integrity and fairness to the taxpayer (or taxpayers in general because it has wasted government funds).

If the IRS places a lien on a taxpayer who has no assets, it has abused its power because the purpose for doing so could only have been to punish the taxpayer.

About Peter Pappas

Peter is a tax attorney and certified public acccountant with over 20 years experience helping taxpayers resolve their IRS and state tax problems.

He has represented thousands of taxpayers who have been experiencing difficulty dealing with the Internal Revenue Service or State tax officials.

He is a member of the American Association of Attorney-Certified Public Accountants, the Florida Bar Association and The Florida Institute of Certified Public Accountants and is admitted to practice before the United States Tax Court, the United States Supreme Court, U.S. District Courts - Middle District of Florida