SOURCE: Tax Resolution Institute

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December 04, 2009 18:00 ET

The Tax Resolution Institute Update About Payroll Taxes, IRS Liens and the 45-Day Rule for Lenders

Both Borrowers and Lenders Must Understand the 45-Day Rule Before Unpaid Payroll Taxes Result in IRS Liens

LOS ANGELES, CA--(Marketwire - December 4, 2009) - Unpaid payroll taxes by borrowers can place lenders in financial jeopardy. The United States Congress instituted the 45-Day Rule in 1966 to correct a problem experienced by commercial lenders set against a federal tax lien. The root principle employed in determining the priority of liens is "first in time is the first in right." The first-in-time rule creates a hardship for commercial lenders and factors because their loans and collateral can change daily.

You can learn more about payroll taxes and tax relief at the Tax Resolution Institute:

When the IRS issues an assessment for unpaid payroll taxes, an official notice of a federal tax lien is filed, placing both a business and its creditors in financial jeopardy. The 45-day rule states that a lender, whose collateral can be identified only after the filing, receives first position priority subject to the following:

1. The security agreement must predate the tax lien filing.

2. The holder of the interest may make disbursements no more than 45 days after the tax lien filing.

3. The collateral securing those disbursements must be acquired within those 45 days.

4. The collateral relates to loans made under the subject agreement.

5. At the time of the disbursement, the holder cannot have "actual knowledge or notice" of the tax lien filing.

Despite the 45-Day Rule, a federal tax lien by the IRS has always enjoyed certain advantages when it comes to deciding first position. For instance, courts have held that to be first in time, the nonfederal lien must first be "choate," meaning the identity of the lien and the property subject to the lien are reasonably determinable.

According to the IRC, IRS Collection Officers only invalidate a tax lien against the interests of a lender that satisfy traditional choatness doctrine within 45 days after a tax lien filing while providing for "sudden death" of a security interest recently acquired. This "sudden death" potential becomes a threat if a borrower owes payroll taxes and the IRS files a tax lien. If a lender has loaned to a business with unpaid payroll taxes, the collateral supporting their loan could be in jeopardy.

Contact Information

  • Peter Stephan
    President, Tax Resolution Institute
    (877) 829 - 8370