A federal tax lien attaches to alimony payments a taxpayer routed through a business-sale contract

Plain-English summary

This Chief Counsel Advice answers whether a federal tax lien reaches money that a delinquent taxpayer has arranged to be paid to his ex-wife. As part of his divorce (ordered before the tax lien arose), the taxpayer owed monthly alimony. He later sold his interests in three businesses, and the sale contract required the buyer to have one of the businesses make the taxpayer's monthly alimony payments for him. The question: does the federal tax lien attach to those payments? Chief Counsel advises yes. The contract gives the taxpayer a fixed contractual right to payment, and a federal tax lien attaches to a taxpayer's property and rights to property, including an unqualified right to receive periodic payments. That the money goes directly to the ex-wife rather than to the taxpayer does not defeat the lien, because the payments are compensation to the taxpayer and are made for his benefit (they discharge his alimony obligation). The advice notes a caveat: if the alimony has been paid in full or the parties stopped following the contract, there may be no payments left for the lien to reach.

Ruling snapshot

• Question: Does a federal tax lien attach to alimony payments the taxpayer arranged, through a business-sale contract, to have a buyer pay to his ex-wife?
• Outcome: Advice given (the lien attaches to the payments)
• Key authorities: IRC § 6321; Corwin Consultants, Inc. v. Interpublic Group of Companies, Inc., 512 F.2d 605 (2d Cir. 1975); Mantovani v. Fast Fuel Corp., 494 F. Supp. 72 (S.D.N.Y. 1980); Rev. Rul. 55-210

Full text (IRS public release)

ID:      CCA_2022032411001313                       [Third Party Communication:
UILC:    6321.01-18, 6323.05-00                     Date of Communication: Month DD, YYYY]

Number: 202226010
Release Date: 7/1/2022
From: ------------------
Sent: Thursday, March 24, 2022 11:00:13 AM
To: ---------------------------
Cc: -----------------
Bcc:
Subject: Federal Tax Lien - payments to satisfy alimony obligation


You have asked us about the priority of the federal tax lien (FTL), in a situation where
the taxpayer was ordered to pay monthly alimony payments to his ex-wife as a part of
the taxpayer's divorce and such order was issued prior to the FTL arising. In short,
following the taxpayer's divorce, the taxpayer sold his interest in three businesses to a
purchaser in exchange for multiple forms of compensation provided by the contract
terms. One of the contract terms provides that the purchaser will cause one of the
business entities to pay the taxpayer's monthly alimony obligations to the taxpayer's ex-
wife. Currently, we are not aware of the history of alimony payments since the execution
of the contract. For purposes of this advice, we are assuming that the monthly
payments have occurred and continue to occur as provided for by the contract.

You have asked whether the FTL attaches to the monthly alimony payments. In our
view, the FTL does attach to the payments. ----------------------------------------------------------
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The contract term that the purchaser will cause the business entity to pay the taxpayer's
monthly alimony obligation provides a contractual right to payment that is subject to
attachment of an FTL. Corwin Consultants, Inc. v. Interpublic Group of Companies, Inc.,
512 F.2d 605 (2d Cir. 1975) (FTL attached to fund comprised of periodic payments
owed to taxpayer under severance agreement); Mantovani v. Fast Fuel Corp., 494
F.Supp. 72, 77 (S.D.N.Y. 1980) (FTL attached to taxpayer's contractual right to
proceeds); Rev. Rul. 55-210 ("Where a taxpayer has an unqualified fixed right, under a
trust or a contract, or through a chose in action, to receive periodic payments or
distributions of property, a Federal lien for unpaid tax attaches to the taxpayer's entire
right. . . ").

Assuming the payments are occurring, they are part of the compensation given to the
taxpayer in exchange for his business interests. That the payments are directed to the
taxpayer's ex-wife and not the taxpayer himself should not prevent attachment of the
FTL because the payments are compensation to the taxpayer and for the benefit of the
taxpayer. However, if the alimony obligation has been paid in full, or if the purchaser
and taxpayer have otherwise not abided by the arrangement provided for by the
contract, there may be no payments accruing.
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