Federal Tax Lien Searches

Federal Tax Lien Searches

It would seem that searching for federal liens, including federal tax liens, would be the same as searching for UCC financing statements. After all, federal tax liens in most instances are recorded in the central filing office together with financing statements recorded against personal property, so one would assume that a search under the exact legal name of the debtor following the spirit of Revised Article 9 would be sufficient to discover federal tax liens against the debtor.

However, federal tax lien recording is regulated by the Internal Revenue Code which merely requires the IRS to record federal tax liens under the name of the taxpayer, not the correct name of the debtor as prescribed by Article 9. Reversing a lower court decision, the U. S. Sixth Circuit Court of Appeals determined in an opinion dated June 21, 2005, that a federal tax lien that could not be discovered in response to a filing office search under the correct name of the debtor was nonetheless effective and had priority over a secured lender that recorded a financing statement under the correct name of the debtor. In essence, the court determined that the Internal Revenue Service is not subject to UCC Revised Article 9 provisions that necessitate that secured parties specify the correct name of the debtor in a financing statement as evidenced in formation records in the jurisdiction of organization.

Keep in mind that the taxpayer name and the entity’s legal name may be very different. Therefore, to search for federal tax liens that may be effective against a taxpayer, one should inspect tax returns and other federal tax documents to verify the name of the taxpayer and other variations of the name. In addition to requesting a search from the filing office under the exact legal name to discover UCC filings, one should request a search under the name of the taxpayer to discover federal tax liens.

To further complicate searching for federal tax liens, the IRS is notorious for including superfluous information regarding the taxpayer name such as adding “a Delaware Corporation” after the legal name of the debtor (“A.B.C., Inc., a Delaware Corporation”).

While some filing offices may apply special indexing rules to federal tax liens to counteract deficiencies in IRS specification of the name, many filing offices do not. Consequently, a search under the name “A.B.C., Inc.” using the filing office’s standard search logic will not reflect “A.B.C., Inc., a Delaware Corporation” or vice versa.

In those states where one is available, requesting a third party database search may assist in the discovery of both federal tax liens and UCC financing statements under variations of the debtor or taxpayer name.