And on the 46th Day, Who Wins? A Primer on Federal Tax Liens, the 45-Day Rule, and Future Advances

Exceptions for Purchasers, Holders of Security Interests, and Certain Others

The IRS Code provides certain exceptions to the priority established by tax liens at the time of assessment. Under Code '6323(a), the tax lien is not valid against a purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor to the extent that such a creditor's secured interests in the debtor's property have been perfected under local law before the notice of tax lien has been recorded. Priority for these creditors is measured against the tax lien from the date the notice of tax lien is recorded and not from the date of assessment. The exception for these creditors reflects the legislative policy of the Federal Tax Lien Act of 1966 to conform the tax lien to the principles of secured interests under the UCC. As the Bankruptcy Court in In re May Reporting Services, Inc., 115 BR 652, 656 (DSD 1990) explained, the “validity of a tax lien against certain creditors only after notice is in accord with commercial lending's underlying policy of providing adequate notice to other creditors of the government's security interest ' the tax lien noticing system attempts to conform federal tax lien provisions to the U.C.C.'s concepts.” In this regard, the notice of tax lien protects secured creditors “against secret liens in the government favor.” Id. Until recordation of the tax lien, the IRS' interest in the debtor's property is unperfected. Note, however, that the tax lien still attaches to property owned by the debtor in existence as of the date of assessment.