Purchased local tax-lien certificates likely have priority over the federal lien

Plain-English summary

Private parties purchased local tax-lien certificates and, under the relevant state law, stepped into the taxing authority’s position. Chief Counsel advised that their lien interests were likely subrogated to the state’s rights under IRC § 6323(i)(2). As a result, the certificate holders likely qualified for the tax-lien superpriority in IRC § 6323(b)(6) and would receive proceeds before the IRS. The advice also warned the IRS to consult Chief Counsel before issuing a discharge certificate if condemned property had been taken by eminent domain.

Ruling snapshot

• Question: Do purchasers of local tax-lien certificates receive priority over the federal tax lien?
• Outcome: Advice given
• Key authorities: IRC §§ 6321, 6323(b)(6), 6323(i)(2)

Full text (IRS public release)

ID: CCA_2015120713180361 [Third Party Communication:

UILC: 6323.00-00 Date of Communication: Month DD, YYYY]

Number: 201552030
Release Date: 12/24/2015
From:
Sent: Monday, December 07, 2015 1:18:04 PM
To:
Cc:
Bcc:
Subject: FW: Lien Priority - GL-137318-15

--------,

We believe that because, based on the ----------- law, the private parties who purchased lien
certificates step into the shoes of the taxing authority (State of -----------), the lien interest that
the private parties hold would likely be subrogated to the rights of the State of ----------- with
respect to the lien imposed by section 6321 of the I.R.C. See I.R.C. §6323(i)(2).

Thus, we believe the holders of the lien certificates likely will have super priority, per section
6323(b)(6) and will be entitled to distribution of the proceeds ahead of the Service. Please
rework your memo to reflect this. Your analysis of section 6323(b)(6) is thorough, so you can
keep it, but just apply it towards the State of ----------- as a holder of the lien, since private
parties are merely subrogated to the State of ------------- rights with respect to the lien
certificates they purchased. Once you apply the (b)(6) analysis to the State of -----------, the
deficient fourth element (it must be a tax) will be satisfied. If you want us to look at the memo
again after you are done, we will gladly do so.

Also, in your memo you mentioned that the City of --------, ----------- condemned a piece of real
property. If the situation in your case is really the taking of the property by the City of -------- by
eminent domain, please advise the Service to be careful when issuing a certificate of discharge
once and if the Service’s lien is satisfied by the condemnation proceed. We would recommend
the Service consult the Chief Counsel office before and if it contemplates the issuance of a
certificate of discharge.

Thank you and if you have any further questions please let me know,