What Is Pub. L. No. 89-719, the Federal Tax Lien Act?

Public Law 89-719, the Federal Tax Lien Act of 1966, modernized the laws governing federal tax liens. Before its passage, the legal framework for the priority of federal tax claims had not been updated in over fifty years, creating uncertainty in commercial transactions as business practices and state laws evolved. The 1966 Act was designed to address these changes by balancing the government’s need to collect taxes with the commercial world’s need for certainty. It conformed federal law to modern commercial practices and established clearer rules for resolving conflicts between federal tax claims and private creditor rights.

Creation and Scope of the Federal Tax Lien

The federal tax lien arises automatically by law. The process begins when the Internal Revenue Service (IRS) assesses a tax liability against a taxpayer and sends a “Notice and Demand for Payment.” If the taxpayer fails to pay the full amount after the demand, a lien is created on the date of the assessment under the authority of Internal Revenue Code Section 6321. This gives the government a legal claim to a taxpayer’s assets to secure payment of the tax debt.

The scope of the lien is broad, attaching to “all property and rights to property” belonging to the taxpayer. This includes both real property, like land and buildings, and personal property, such as vehicles, bank accounts, and stocks. The lien is not limited to assets the taxpayer owns when the lien arises; it also attaches to any property the taxpayer acquires while the lien is in effect.

Priority of the Federal Tax Lien Against Other Creditors

The general principle for priority disputes between a federal tax lien and other claims is “first in time, first in right.” For the federal tax lien, its “time” is the assessment date. However, because this lien is not publicly recorded when it first arises, it is considered a “secret lien” that can create uncertainty for other creditors. To make its claim effective against most other creditors, the IRS must file a Notice of Federal Tax Lien (NFTL) in the appropriate public records office. The filing serves as public notice that the government has a claim against the taxpayer’s property.

The Federal Tax Lien Act of 1966 established protections for four classes of creditors whose interests can take priority over a federal tax lien if they arise before the IRS files the NFTL. As defined in Internal Revenue Code Section 6323, these protected creditors can engage in transactions with the taxpayer without their claims being subordinate to the government’s unrecorded tax lien.

These protected parties include:

• A purchaser who acquires an interest in property for adequate and full consideration.
• A holder of a security interest, such as a mortgage lender, who has a claim on property as collateral for a loan.
• A mechanic’s lienor, who is a contractor or supplier with a lien on real property for labor or materials used to improve it.
• A judgment lien creditor who has won a lawsuit and obtained a lien on the taxpayer’s property through a court judgment.

Before the 1966 Act, courts applied a strict “choateness” doctrine that required a competing lien to be specific in its amount, the property involved, and the lienor’s identity. This standard was difficult for creditors to meet. The Act provided more certainty for the four protected classes by making the filing of the NFTL the key event for establishing priority against them.

Statutory Superpriorities

A feature of the Federal Tax Lien Act was the creation of “superpriorities.” These are specific claims that take priority over a federal tax lien even if an NFTL has already been filed. These exceptions were created to allow certain common transactions to proceed without disruption.

Examples of these superpriorities include:

• Real property taxes and special assessments levied by local governments.
• A mechanic’s lien for the repair or improvement of an owner-occupied personal residence, if the contract price is below a certain amount ($9,790 for 2025).
• An attorney’s lien on a judgment or settlement fund that the attorney helped recover for the taxpayer.
• Loans secured by a savings account or passbook, provided the lending institution does not have actual knowledge of the lien.
• Purchases of personal property in a casual sale for less than a specified amount ($1,960 for 2025).
• Purchases of personal property at retail in the ordinary course of the seller’s business.

Administrative Lien Release and Discharge

The Federal Tax Lien Act of 1966 clarified several administrative remedies that allow taxpayers and third parties to resolve lien issues without going to court. These non-judicial options provide flexibility for managing the lien through release, discharge, subordination, or a certificate of nonattachment.

Release of Lien

A full release of the federal tax lien removes the government’s claim from all of the taxpayer’s property. The IRS must issue a Certificate of Release of Lien within 30 days after the tax liability is fully paid or becomes legally unenforceable, such as through the expiration of the statute of limitations on collection. A taxpayer can also get a release by posting a bond that guarantees payment of the tax debt.

Discharge of Property

A discharge removes the lien from a specific piece of property, while the lien remains on all other assets. This is often used when a taxpayer needs to sell an asset, like a house. The IRS may grant a Certificate of Discharge if the taxpayer pays the sale proceeds to the government or if the government’s interest in that property is determined to be valueless.

Subordination of Lien

Subordination of the federal tax lien allows another creditor’s lien to move into a higher priority position. This is often sought when a taxpayer needs to refinance a mortgage or obtain a new loan. The IRS may agree to subordinate its lien if doing so is determined to ultimately increase the amount the government can collect from the taxpayer.

Certificate of Nonattachment

A Certificate of Nonattachment is an administrative tool used to resolve cases of mistaken identity. This IRS-issued document states that a federal tax lien filed against a similarly named person does not attach to the property of the individual applying for the certificate. It is useful when a person with a common name is trying to sell property and a title search reveals a tax lien against someone else with the same name.

Civil Actions Involving Federal Tax Liens

The Federal Tax Lien Act also clarified the rights of taxpayers and third parties to seek judicial relief in federal court. These civil actions provide a formal legal process for resolving disputes over the government’s lien or its enforcement actions.

A wrongful levy action can be brought by a third party who claims an interest in property that the IRS has seized to satisfy another person’s tax debt. For example, if the IRS seizes a jointly owned car, the co-owner can sue the government to have their interest in the property protected. This action allows innocent third parties to recover their property.

A quiet title action can be filed by a taxpayer or a third party to clear the title of a property from a federal tax lien. This proceeding asks a court to determine the true ownership of a property and the priorities of all competing liens. A successful action results in a court order that resolves the cloud on the property’s title.

The government also has the right to initiate a civil action to enforce its lien. The IRS can file a lawsuit to foreclose the federal tax lien, which asks a court to order the sale of the taxpayer’s property and apply the proceeds to the tax debt. The government can also intervene in any lawsuit where a federal tax lien is at issue, such as a foreclosure initiated by another creditor, to assert its claim and protect its interest.