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for a security interest in after-acquired
property, such as new inventory, the
holder will only have priority in proper-
ty belonging to the taxpayer before the
NFTL (with one important exception,
discussed in the next section).
A "mechanic's lienor" refers to some-
one building or improving property.
Under the Code, this type of creditor
must have a lien on real property for
services, labor, or materials furnished
in connection with the construction or
improvement of the property. But the
earliest the mechanic's lien can arise is
when the creditor actually begins work-
ing on or providing for the building or
improvement. To illustrate, Acme hires
Builder, who does not know Acme
owes a tax liability. Builder begins con-
structing a new building, and then the
IRS files the NFTL. Builder will have
priority over the IRS up to the amount
of services, labor, or materials he pro-
vided on and before the date of filing.
By contrast, Builder would not have a
priority if he was hired by Acme, the
NFTL was subsequently filed, and after-
wards he began work on the building.
Finally, "judgment lien" creditors are
those who obtain a valid judgment in a
court of record and of competent juris-
diction. These creditors must be care-
ful to comply with all judicial require-
ments for perfection for the particular
property in which they want priority. In
many cases, would-be judgment lien
creditors did not enjoy priority status
because they did not record the judg-
ment or actually seize the property as
state law required.
After the NFTL
Filing the NFTL will ensure the govern-
ment's priority over third parties in
property or rights to property the tax-
payer subsequently acquires. The IRS
manual directs officers to file the NFTL
if the aggregate unpaid balance of
assessment is $5,000 or more. Even
when the balance is lower, filing the
NFTL is recommended when it would
"promote payment compliance," which
will usually be the case. The IRS has
priority in property acquired after the
NFTL filing even if an agreement
entered into before the NFTL provides
creditors with a security interest in
after-acquired property. The rationale
is that a security interest does not exist
until the taxpayer owns the property.
Because the NFTL is filed before the
taxpayer owns the property, the NFTL
pre-dates the creditor's security inter-
est in that particular property.
There is one important exception,
though. Congress recognized that it is
very difficult to conduct business if
creditors must constantly check
whether NFTLs are filed against
debtors. Thus, the Code provides cred-
itors with priority in certain property
(and rights to property) of the taxpayer
acquired within a 45-day grace period,
explained in the next section.
The 45-Day Rule
In most cases, creditors can have pri-
ority only in property or a right to prop-
erty held by taxpayers before the
NFTL. But creditors who enter into four
specific types of agreements can also
have priority in specific types of proper-
ty (or rights to such property) the tax-
payer acquires on and up to 45 days
after the NFTL. In other words, for
these creditors (and only in certain
property), the date when they lose pri-
ority is 46 days after the filing of the
NFTL, rather than the date of the filing
itself. Once again, a creditor's actual
knowledge of the lien will shorten the
45-day period, but this is rare because
the creditor would be unlikely to make
advances upon learning of the tax lien.
The first limit the type of agreement
concerns complicated definitions that
are beyond the scope of this article, but
all of the agreements involve creditors
advocacy community education
24
IRS Tax Liens
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