The statutory lien arises automatically. The public notice does not. Someone at the IRS decides to file it, and that decision follows written procedures in the Internal Revenue Manual. If you know those procedures, you can often see a filing coming, and sometimes you can change the outcome before it happens.
A short warning before we start. The dollar figures below are IRS internal guidelines, not statutory limits. The law allows the IRS to file a notice for any unpaid assessed tax. The guidelines tell you what the IRS usually does.
Two different places make the decision
Most collection cases live in one of two places. Field cases are assigned to a revenue officer, and IRM 5.12.2 (Notice of Lien Determinations) governs the filing decision. Campus cases, including the Automated Collection System, follow IRM 5.19.4 (Enforcement Action). The rules are similar, but not identical.
The $10,000 guideline
For revenue officers, IRM 5.12.2.6 says that in general a notice should be filed when the aggregate unpaid balance of assessments is $10,000 or more. "Unpaid balance of assessments" means the total of all unpaid, assessed tax periods. Interest and penalties that have accrued but have not been assessed are not counted.
The same section adds the other side of the rule: generally, notices will not be filed when the unpaid balance is less than $10,000, "but they may be filed if they will protect the government's interest, such as in the case of an impending bankruptcy or other exigent circumstances."
The campus manual tracks the same number. IRM 5.19.4 tells ACS employees to file a notice on various case types when the aggregate assessed balance is $10,000 or more, and it requires managerial approval when the decision is to file on an account where the aggregate assessed balance is less than $10,000.
The $2,500 floor
Below a certain amount, filing almost never happens. IRM 5.12.2.6 says that except in rare circumstances a notice should not be filed when the balance to be reflected on it is less than $2,500. The exception is when filing right away will prevent a loss to the government, such as when a taxpayer is dissipating assets.
Situations where the manual says "file"
IRM 5.12.2.6 lists situations in which a revenue officer should, in general, file a notice:
- The aggregate unpaid balance of assessments is $10,000 or more.
- An installment agreement does not meet the streamlined, guaranteed, or in-business trust fund express criteria.
- An open account with an aggregate unpaid balance of $10,000 or more is being reported as currently not collectible.
- There is property not being administered in a federal bankruptcy or state insolvency proceeding, unless filing is stayed by the proceeding.
- The taxpayer lives outside the United States and has known assets.
Notice the currently not collectible item. A lot of people are surprised to see a lien notice filed right after the IRS agrees they cannot pay. The logic, from the IRS side, is that the account is going to sit, and the notice protects the government's position while it sits.
Situations where the manual says "do not file"
IRM 5.12.2.4.2 lists cases where notices generally should not be filed. Among them:
- A defunct corporation or LLC whose assets have already been liquidated.
- A deceased taxpayer with no known assets in an estate.
- An indication that the liability has been satisfied, or credits are available to satisfy it.
- A taxpayer in bankruptcy, where the notice relates to pre-petition liabilities and the automatic stay applies.
- Genuine doubt as to the validity of the liability, such as assessments against identity theft victims, with documentation.
- A collateral agreement with the IRS under IRM 5.6.1.
Also, IRM 5.12.2.3.1 says no filing determination is required on guaranteed or streamlined installment agreements or in-business trust fund express agreements, although a revenue officer can still file where needed to protect the government's interest.
Deferral: when filing would hurt collection
This is the most useful part of the manual for many businesses. IRM 5.12.2.4.3 allows a revenue officer to defer filing when the officer can substantiate with reasonable certainty, supported by documentation from the taxpayer, that filing the notice will hamper collection. The deferral must be part of an agreed resolution.
The manual's examples tell you what kinds of facts work:
- A viable business that factors its accounts receivable proposes a reasonable resolution with supporting documentation.
- A viable business operating on a floor plan, like an auto dealership, does the same.
- A viable business that would lose revolving receivables financing if a notice is filed proposes a reasonable resolution.
- A taxpayer near closing on a refinance that will pay the tax, where the notice would kill the loan.
And the examples tell you what does not work. The manual says embarrassment in the business community is not a reason to defer. Wanting to buy or lease a car that is not needed to earn income is not a reason to defer. The manual is also clear that a notice "may affect a taxpayer's credit rating, but this alone is not sufficient reason to withhold filing."
Deferral is a business argument, not a personal one. Show the IRS that the notice costs it money.
You should get a warning first
The campus manual requires a written warning of lien filing on each tax period before the notice is filed. IRM 5.19.4.5.3.1 lists examples: CP 501, CP 504 or CP 523, an ACS LT11 or LT39, or a letter that refers to lien filing. The same section tells employees to advise the taxpayer of the government's need to file, of the fact that credit bureaus routinely research public records, of the possibility of credit denials, and of the certified letter that will follow the filing.
If you received one of those notices, treat the warning as real. The window between the warning and the filing is when you have the most leverage.
Timing in the field
Revenue officers work on a clock. Under IRM 5.12.2, for taxpayers residing in the United States, the filing determination is due 10 calendar days from the initial attempted or actual contact, whichever is earlier. Group manager approval is required to defer a filing more than 120 days from the initial or last taxpayer contact. In other words, if a revenue officer just called you, the lien decision is likely to be made within days, not months.
What you can do before the notice is filed
- Pay below the threshold. If your assessed balance is near $10,000, paying it below that number can change the default decision. Remember that the guideline is about the aggregate unpaid balance of assessments.
- Qualify for an agreement that does not require a determination. Guaranteed and streamlined installment agreements are listed as exceptions in IRM 5.12.2.3.1.
- Document a hamper-collection argument. If you run a business with factoring, floor plan or receivables financing, gather the loan documents and the lender's lien-triggered default clause before you talk to the IRS.
- Raise genuine doubt about the liability. If the assessment is wrong, say so with documents. Doubt as to validity is a listed reason not to file.
- Object through the Collection Appeals Program. On ACS cases, IRM 5.19.4 says that when a taxpayer objects and the do-not-file criteria do not apply, the objection is treated as a Collection Appeals Program request before the notice is filed.
After the notice is filed
If the notice goes on record anyway, the IRS must send Letter 3172 within five business days, and you get a short window to request a Collection Due Process hearing. Read Letter 3172 and your lien hearing deadline right away. If you later qualify, withdrawal may take the notice off the record; see the four grounds for lien withdrawal, including the direct debit installment agreement route.
The filing decision is not random, and it is not personal. It is a checklist. Learn the checklist, and you stop being surprised by it.