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Property Tax

Tax Claim Not Secured; IRS Filed Lien Notice in Wrong County

Thomson Reuters Tax & Accounting  

· 5 minute read

Thomson Reuters Tax & Accounting  

· 5 minute read

An IRS lien filed against a debtor’s personal property was ineffective for purposes of securing a tax claim in bankruptcy because the lien wasn’t filed in the county where the debtor resided.


The IRS objected to the debtor’s confirmed plan, which treated the agency’s claim as a general unsecured claim. The IRS asserted that part of its tax claim was secured by a lien it filed in Benton County, Tennessee, because the address the debtor claimed as her home address on her tax return was in that county. However, the debtor asserted that part of the IRS’ claim wasn’t secured because the Notice of Federal Tax Lien wasn’t filed in her county of residence and, therefore, failed to attach to her property.

Tax liens.

The Code automatically imposes a lien on a taxpayer’s property when a taxpayer fails to pay their taxes. For the lien to secure a tax claim, the IRS must file a Notice of Federal Tax Lien with the county where the taxpayer’s residence is located.

Court found IRS lien ineffective.

In a case of first impression, the bankruptcy court determined that the Notice of Federal Tax Lien filed against the debtor in Benton County didn’t attach to the debtor’s personal property because the debtor’s residence wasn’t located in that county. As a result, the lien didn’t secure the IRS’ tax claim.

Note. This issue arose because the debtor claimed she didn’t actually reside at the address she used on her tax return. The debtor testified that she moved around a lot so she used her mother’s address in Benton County for convenience.

The court rejected the IRS’ argument that it was entitled to treat the address in Benton County as the debtor’s county of residence because the address she used on her tax returns was in that county. The court found no binding legal support for this contention because that address was not, in fact, the address where the debtor physically resided and the statute specifically requires the IRS to file its lien notice with the county where the debtor resides.

The court acknowledged that a federal tax lien is created in favor of the IRS upon the assessment against the taxpayer even without recording a Notice of Federal Tax Lien. However, under federal law the lien does not attach to personal property for purposes of securing a bankruptcy claim until it is properly filed with the county where the taxpayer actually resides.

The court also noted that where a debtor actually resides is a question of fact that considers multiple factors, including how long the debtor stayed at the address. There was no evidence the debtor made more than short temporary stays at the Benton County address. The debtor testified she “never spent money on the home, nor did she pay real estate taxes or insurance” and, while she visited and stayed with her mother, “the longest she ever stayed [at her mother’s address] was a week.”

Since the IRS didn’t “properly file” a lien against the debtor, the lien didn’t attach to the debtor’s property to secure the IRS’ claim against the debtor.

For more information, see filing and recording of federal tax lien.


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