Is there property that a tax lien does not stop you from selling?

by Howard S. Levy, Esq. on August 3, 2012

in IRS Collection Problems, Tax liens

The general rule is that a Federal tax lien attaches to all of your property.  But there are exceptions – known as “superpriorities” – situations in which you can sell your property even though the IRS has filed a tax lien against you.

The tax code will allow you to sell your car to a buyer who does not know of the tax lien.  And most buyers of cars would not have knowledge of a Federal tax lien against you because a tax lien is filed with your local county recorder or clerk of court – it is not noted on your car title, as would a bank loan.

Your buyer’s knowledge of the lien is important because Internal Revenue Code 6323(b)(2) prevents tax liens from interfering with the sale of your car unless the buyer had notice or knowledge of the tax lien at the time of purchase.

In other words, unless your buyer knows about the Federal tax lien when he buys the car, the tax lien does not have to be paid to permit transfer and sale.

Yes, you can sell the car, and keep the proceeds, even though the IRS has filed a tax lien against you.  (Of course, the IRS can levy the proceeds of the sale if you have cash on hand.)

The tax code provides similar protections to the sale of securities and personal property purchased at retail.  If the IRS has a Federal tax lien, and you sell stock to an arms-length buyer who is unaware of the lien, the stock passes to the buyer free and clear.   If you go to a store, which owes money to the IRS and has tax lien filed against it (including inventory for sale), your purchase of an item in that inventory is unaffected by the lien if you did not know about it.  In other words, the IRS does not follow the lien to you, the innocent purchaser.

Even though it attaches to most everything you owe, the IRS usually does not enforce it unless your property (1) has value and equity and (2) is not necessary to your health and welfare (household goods, or a vehicle to get you to work, and even equipment that you must use in your business is necessary to your health and welfare).  And in most situations, the lien is good only for the timeframe the IRS has to collect from you, which is 10 years.

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