The Federal Tax Lien and Exemptions: Handling IRS Enforcement of Valid Tax Liens
- Steven L. Walker PLC
- Apr 1, 2022
- 1 min read
Generally, the Internal Revenue Service (IRS) is enjoined from taking collection action if taxes are discharged.1 After an individual receives a discharge, the IRS is also precluded from issuing post-discharge collection notices, attaching and withholding the individual’s wages, filing a notice of federal tax lien, or seizing property such as a tax refund. Faced with post-discharge collection actions, a taxpayer may petition the bankruptcy court for damages after exhausting administrative remedies with the IRS.
Although taxes may be discharged, the IRS can still pursue collection post-discharge if the IRS has a valid federal tax lien and the debtor has exempt, abandoned or excluded property. With the increased homestead exemption in California and other states and large-dollar retirement accounts, expect the IRS to look to these assets to satisfy the government’s lien interest. For example, suppose a taxpayer takes advantage of the new increased California homestead exemption and schedules a homestead exemption to save a house.3 Post-discharge, the IRS can force the debtor into a short-term payment plan, otherwise the debtor might face lien foreclosure. This article provides advice for guiding clients that seek to discharge taxes in bankruptcy and practical guidance to help avoid common pitfalls when dealing with IRS enforcement post-discharge.
