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What’s Your Strategy to Address Newly Filed IRS Tax Liens?


Patrick True Author: Pat True,

Here is the scenario.  You have a revolving credit line in place to a small business.  You periodically fund draws on that line as requested, and may monitor borrowing base values to assure that your collateral is sufficient to secure the outstanding facility.  In such a scenario, where you have perfected a security interest in business assets, how does your organization become aware of any new IRS tax liens that are filed against your client’s assets?

In the scenario above, most banks interpret IRS Code 6323 to state that the bank would maintain its priority interest in the business assets for any draws up to the 46th day after the IRS had perfected its lien by filing where appropriate for that state.  The 45 day period could be shorter if the financing institution had notice of the lien.  Since tax liens and unpaid taxes would be a condition of default, you would stop funding new draws on the line upon notice or discovery.

It is one thing to assure the presence of a lien when a new credit facility is created, but another to monitor ongoing exposure with revolving credit facilities.  Many banks we speak with utilize third parties to monitor their commercial accounts and to catch any new filings.  Others have begun to utilize tax form 8821 (Tax Information Authorization), which allows the financing institution to become an appointee authorized to receive copies of tax information sent to their client.  Since this form can later be revoked by your client, the practice is not foolproof – but it does show your client that you are diligent in searching.  Some third party monitoring services even file these on behalf of the bank, and continue to monitor their status.

Let us know your strategy.  Do you utilize form 8821 with your commercial revolving credit lines?  Do you contract with a third party to help monitor any tax delinquencies of your clients, or do you have an internal procedure to reach out and check lien filing updates internally on a regular monthly schedule?


Tax Guard has developed a way to detect when a company has not filed quarterly tax returns or has other outstanding tax liabilities before the IRS makes it known publicly. With this information in hand, lenders are now weeding out high credit risks with much greater accuracy much to the chagrin of businesses who up until now could fly under the radar for years before their tax issues became known. In addition to improving loan portfolios, the long-term benefit is that this exposure may help reduce the number of delinquent corporate tax filings, which have increased as much as 60 percent since 2007.
Posted @ Thursday, November 03, 2011 11:02 AM by Hansen Rada
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