Section 6323(j) (1) provides the general rule that the if the IRS withdraws a NFTL, the NFTL will be treated as if the withdrawn notice had not been filed, if the Secretary determines that— (A) the filing of such notice was premature or otherwise not in accordance with administrative procedures of the Secretary, (B) the taxpayer has entered into an agreement under section 6159 to satisfy the tax liability for which the lien was imposed by means of installment payments, unless such agreement provides otherwise, (C) the withdrawal of such notice will facilitate the collection of the tax liability, or (D) with the consent of the taxpayer or the National Taxpayer Advocate, the withdrawal of such notice would be in the best interests of the taxpayer (as determined by the National Taxpayer Advocate) and the United States. Section 6323(j)(1) is permissive. Although section 6323(j)(1) allows the Commissioner to withdraw the NFTL for any of the listed reasons, it does not require him to do so . The IRS Internal Revenue Manual requires the filing of a tax lien for tax assessment balances of $5,000 or more and states that the tax lien should filed even if the tax balance is less than $5,000 if the filing of the tax lien will promote payment compliance . The tax lien will not be released until the tax debt is paid or otherwise discharged. The IRS recently published IR-2011.20 on February 24, 2011, centering on important changes to its lien filing practices that will lessen the negative impact on taxpayers. The changes include: • Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens. • Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill. • Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement. • Creating easier access to Installment Agreements for more struggling small businesses. • Expanding a streamlined Offer in Compromise program to cover more taxpayers. The IRS will significantly increase the dollar thresholds when liens are generally filed. The new dollar amount is in keeping with inflationary changes since the number was last revised. Currently, liens are automatically filed at certain dollar levels for people with past-due balances. The IRS plans to review the results and impact of the lien threshold change in about a year. The IRS will also modify its current procedures to make it easier for taxpayers to obtain lien withdrawals. Liens will now be withdrawn once full payment of taxes is made if the taxpayer requests it. The IRS has determined that this approach is in the best interest of the government. In order to speed the withdrawal process, the IRS will also streamline its internal procedures to allow collection personnel to withdraw the liens. The IRS is making other fundamental changes to liens in cases where taxpayers enter into a Direct Debit Installment Agreement (DDIA). For taxpayers with unpaid assessments of $25,000 or less, the IRS will now allow lien withdrawals under several scenarios: • Lien withdrawals for taxpayers entering into a Direct Debit Installment Agreement. The IRS will withdraw a lien if a taxpayer on a regular Installment Agreement converts to a Direct Debit Installment Agreement. • The IRS will also withdraw liens on existing Direct Debit Installment agreements upon taxpayer request. Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored. The policy of the IRS to file mandatory tax liens in all cases above the current $5,000 is the only part of the tax lien change that is misguided because it makes the filing of an NFTL mandatory when that threshold for filing an NFTL is met. The language drafted by Congress under section 6321 crates an unperfected lien, and not one that requires that the tax lien be perfected by a filing of the tax lien in the public records. When the IRS created a mandatory filing of tax liens in the public records in its Manual, and now supported by IR-2011-20, it converted a discretionary power to a mandatory rule that is in conflict with the intent of Congress. In the case of a consulting or other service business (e.g., the mortgage loan industry) with no significant assets relative to the tax debt, the tax lien will destroy credit, result in the disqualification of mortgage loan originators, destroy businesses, and correspondingly reduce the collection of tax revenue. This abuse of power is form of misconduct, because the IRS is transmuting a discretionary tax lien statute into a mandatory tax lien statue. As noted in IR-2011-20, the IRS will always file a tax lien in all cases where the tax debt reaches a yet unannounced threshold. The application to request a tax lien withdrawal if on Form 12277 (Rev. August 2005) Application for Withdrawal of Filed Notice of Federal Tax lien (as based on Internal Revenue Code Section 6323(j). http://www.irs.gov/pub/irs-pdf/f12277.pdf. As indicated in IR-2011-20, a tax lien can be facilitated in the context of an Installment Agreement.

Section 6321 of the Internal Revenue Code creates an unperfected (statutory) tax lien on taxpayers in cases where there is an unpaid tax debt. The IRS thereafter has the plenary discretion to file the Notice of Filing of Tax Lien (NFTL) in the public records. The NFTL is immediately picked up by the credit agencies in their credit reports. The tax lien will not be released until the tax debt is paid or otherwise discharged. The credit agencies keep a record of the tax lien on the taxpayer’s credit report during the period that tax debt remains unpaid and for seven years after the tax debt is released or discharged. The NFTL has severe negative economic consequences on individual and business taxpayers. The IRS criteria for filing tax liens is found in the Internal Revenue Manual (IRM) 5.12.2.4.1 (05-20-2005). The IRM requires a filing of a NFTL if the unpaid balance of assessment (UBA) is $5,000 or more. Even where a taxpayer has offered to full pay the UBA in an Installment Agreement (including interest and penalties), the IRS mandates the filing of an NFTL. A mandatory NFTL, in effect, is in conflict with the intent of Congress to make the NFTL discretionary. IRM 5.12.2.4.1 requires the NFTL without taking into account whether or not the tax lien will cause an economic hardship or reduce taxable revenue. My personal experience with the IRS Revenue Officers is that they will file a NFTL even when they know it will cause irreparable economic harm to an individual or business taxpayer because they believe they are mandated to file the NFTL by the IRM. The underlying tax policy for IRS tax liens is to protect the standing of the IRS as a creditor over other future creditors. That tax policy is not served where an individual taxpayer has limited assets, owns no real estate and has limited income that is only sufficient for reasonable and necessary living expenses. That tax policy is not served if the result of a NFTL is a large loss of current and future income for individual and business taxpayers. An NFTL filed in the public records is devastating to individual taxpayers. We live at a time where there is immediate access to credit reports. Landlords will often not rent an apartment to a taxpayer with an NFTL. Increasingly, employers will not hire a taxpayer with a NFTL, and some employers will dismiss an existing employee with a NFTL. The reduction of taxable income causes by an unnecessary NFTL undercuts the ability of taxpayer to pay their outstanding tax liability and for that reason expands the Tax Gap. When an NFTL is filed on a business, current lenders often withdraw financing (e.g., account receivable factors), they will not be able to get credit for inventory and supplies. Business customers will often terminate their business relationship immediately when they have notice that their supplier or service provider has a NFTL. The bad credit caused by an NFTL means that the business will lose the ability to a borrow money to purchase inventory or borrow to invest in further business growth. An NFTL is one of the largest factors contributing to the demise of small businesses. When the business closes, there is a loss of business income, a loss of tax revenue and a loss of jobs. In small-asset situations and in the case of pure service providers (e.g., consultants and other professionals), an NFTL has no effect or purpose other than to ruin the credit of the service business taxpayers. Insurance companies will not accept contracts from an insurance broker with an NFTL. Stock brokers will lose licenses as the result of an NFTL. The Department of Defense will not do business with an individual or a business with a NFTL and will also refuse to renew an existing contract. Without real estate or other large assets, the purpose for an NFTL, to give the IRS a security interest in assets, is not met. In these cases the NFTL causes a loss of employment, a loss of business income, creates economic hardship, and discourages tax compliance with a resulting negative impact on the Tax Gap. Taxpayers incurring economic hardship as the result of an NFTL are likely to join the underground economy and not be tax compliant. It is counterproductive to file tax liens on taxpayers who are willing to full pay their tax debt, interest and penalties in an Installment Agreement. In Installment Agreement cases, individuals and businesses are penalized with a mandatory NFTL even though they want to full pay their outstanding tax debt because the NFTL. A loss of business from the NFTL diminishes the ability of a taxpayer to make the Installment Agreement payments. If an NFTL is filed when an Offer in Compromise (OIC) for a business is under active consideration, the resulting loss of business income will correspondingly reduce the amount needed to pay the IRS to settle the outstanding business tax debt because business income is considered in the settlement calculations. The economic damage caused by an unnecessary and economically counterproductive tax lien is inconsistent with the Mission Statement of the IRS to apply the tax law with “fairness” and with “integrity.” It is senseless for the IRM to mandate a NFTL without measuring the whether the economic damage or hardship caused by the NFTL outweighs the benefit of the NFTL. There is no current legislative threshold or “safe harbor” to prevent an economically counterproductive NFTL. My comment in this matter only applies to situations where the NFTL is not justified. Obviously, there are situations where the NFTL is needed to protect the creditor status of the U.S. A NFTL can be appealed under section 6320 and section 6630 for a collection due process or equivalency hearing. The problem is that these statutes do not offer NFTL relief; they merely provide collection alternatives such as the filing of an OIC or an Installment Agreement. There is an anomaly that section 6320 and section 6330 provide an opportunity to appeal a NFTL but no opportunity to ask for a tax lien withdrawal even if the tax lien is causing an economic hardship and a loss of income. Collection due process appeals under section 6330 provide no relief even when a NFTL is causing an economic hardship. The discretion of the IRS to withdraw a tax lien under section 6323(j) is rare and unusual. Although the National Taxpayer Advocate (NTA) has been granted the authority to stop a “significant hardship” under section 7811, that authority is underused, rare, unusual and difficult to achieve on any tax lien issue.