What Is the 6324 Special Estate and Gift Tax Lien?

Internal Revenue Code (IRC) Section 6324 creates special liens for federal estate and gift taxes. A lien is a legal claim against property to secure the payment of a debt. Unlike a typical lien that requires public filing to be effective, this lien arises automatically as a matter of law. This automatic attachment means the government does not need to take any initial public action for its claim to be valid. The lien ensures that the government’s interest in collecting owed estate and gift tax is secured by the property that generates the tax liability.

The Special Estate Tax Lien

The special estate tax lien comes into existence at the moment of an individual’s death. Its creation is instantaneous and automatic, securing the payment of any federal estate tax that may be due. No assessment, demand for payment, or public notice is required for this lien to attach to the assets of the deceased person. This characteristic makes it a “secret lien,” as it can exist without any formal record in public databases, yet it remains a valid claim against the estate’s property.

This lien encumbers all property included in the decedent’s “gross estate.” The gross estate is a tax concept that includes not only assets passing through probate, like real estate and bank accounts, but also certain non-probate assets. Examples include property held in a revocable trust, life insurance proceeds payable to the estate, and certain jointly owned assets. The lien’s purpose is to ensure that the estate tax liability, calculated on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is paid before assets are fully distributed.

The Special Gift Tax Lien

A parallel mechanism exists for gifts made during a person’s lifetime. The special gift tax lien arises automatically when an individual makes a taxable gift and fails to pay the associated gift tax. This tax is reported on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. Unlike the estate tax lien, which covers the entire gross estate, this lien specifically attaches to the property that was gifted.

A feature of the gift tax lien is the potential liability it creates for the recipient of the gift, known as the donee. If the donor does not pay the required gift tax when it is due, the donee becomes personally liable for the unpaid tax. This personal liability is limited to the value of the gift they received at the time of the transfer.

Duration and Release of the Lien

Both the special estate and gift tax liens have a defined lifespan. The lien remains in effect for 10 years from the date the liability arises. For the estate tax lien, this 10-year period begins on the date of the decedent’s death, and for the gift tax lien, the clock starts on the date the gift was made. The primary method for extinguishing the lien is the full payment of the underlying tax liability.

The lien also terminates if it becomes legally unenforceable, which occurs when the 10-year statute of limitations expires. In situations where property needs to be sold while a tax liability is still being determined, an executor can request a Certificate of Discharge of Property from Federal Tax Lien from the IRS. This document, if granted, releases the specific property from the lien, usually requiring that the government’s interest attaches to the sale proceeds.

Impact on Property Transactions

The existence of this lien has direct consequences for the sale of property from an estate or by a gift recipient. The law provides a mechanism known as divestment, which allows for the lien to be removed from a specific asset under certain conditions. For instance, if an executor sells a portion of the gross estate to pay for administrative expenses allowed by a probate court, that property is divested of the lien. This divestment rule prevents the estate’s administration from being paralyzed by the lien.

A protection is extended to a “purchaser or holder of a security interest.” When such a party pays full and adequate consideration for a property subject to the lien, they receive the property free and clear of the government’s claim. When a purchaser acquires an asset, the lien is divested from the property sold and immediately attaches to the seller’s proceeds from that sale. This means the government’s security interest shifts from the asset itself to the cash or other property received by the estate or the donee.