Non-taxpayer lien payment must use the statutory discharge remedy

Plain-English summary

Chief Counsel advised that a non-taxpayer former spouse who paid a federal tax lien could not use equitable subrogation to seek a refund. Equitable subrogation generally applies when a junior lienholder pays a debt secured by a lien that was senior to the federal tax lien, but the former spouse instead paid the taxpayer's federal lien liabilities themselves. The proper route was a discharge request under section 6325(b)(4), which permits a non-taxpayer owner of encumbered property to pay the IRS-determined lien amount and then challenge that amount through a refund suit under section 7426. The advice explained that Congress created this statutory process after United States v. Williams and made it the exclusive remedy for a person in this position.

Ruling snapshot

• Question: Could a non-taxpayer former spouse recover a federal tax lien payment through equitable subrogation?
• Outcome: No. The statutory discharge and refund-suit process was the exclusive remedy.
• Key authorities: IRC §§ 6325(b)(4) and 7426(a)(4); United States v. Williams, 514 U.S. 527

Full text (IRS public release)

ID:      CCA_2019042914360852
UILC:    6323.07-00, 6325.18-00

Number: 201922028
Release Date: 5/31/2019
From:
Sent: Monday, April 29, 2019 2:36:08 PM
To:
Cc:
Bcc:
Subject: RE: Equitable Subrogation -sec 6323- coordination


On the surface, the 5 requirements for equitable subrogation may appear to have been
satisfied, but the facts in your case are distinguishable from the facts in Han (which you
cited and is often cited as it generally sets out the equitable subrogation
requirements.) Generally, equitable subrogation is potentially at issue where a claimant
with a lien junior to the FTL has satisfied the debt owed a lien interest that is senior to
the FTL. Here, the person has paid off the taxpayer’s tax lien/liabilities, and now seeks
not subrogation having paid off a lien senior to the FTL, but rather a refund.

But the non-taxpayer ex-wife does not have a refund claim. She should have made a
request for discharge under section 6325(b)(4). That is the provision that allows people,
non-taxpayers, who own property encumbered with a FTL to pay the amount of the lien
as determined by the Service, then file a refund suit under section 7426 if they disagree
with the amount required by the Service. That is the only remedy available to people in
this situation. This ex-wife is in a position very similar to Lori Williams in United States
vs Williams, 514 US 527. The government lost, in part, because the Court found that
Williams did not have a viable remedy. So, the Court provided her one—a refund
action. In response to the outcome in that case, the statutory scheme set out in
sections 6324(a)(4) and 7426(a)(4) was enacted. Now people in that situation have a
remedy, but it is the exclusive remedy.