26 U.S.C. § 6323 — Validity and priority against certain persons

(a) Purchasers, holders of security interests, mechanic’s lienors, and judgment lien creditors. The lien under section 6321 does not apply against a purchaser, a holder of a security interest, a mechanic’s lienor, or a judgment lien creditor until the Secretary^* files a notice that meets subsection (f).

(b) Protection for certain interests even though notice filed. Even after the notice is filed, the lien does not apply as follows:

(1) Securities. For a “security” as defined in subsection (h)(4), it does not apply against a purchaser who had no actual notice or knowledge of the lien when buying it. It also does not apply against a holder of a security interest in the security who had no actual notice or knowledge when that interest arose.

(2) Motor vehicles. For a “motor vehicle” as defined in subsection (h)(3), it does not apply against a purchaser who had no actual notice or knowledge when buying it, if the purchaser obtained possession before learning of the lien and did not later give possession back to the seller or the seller’s agent.

(3) Personal property bought at retail. It does not apply to tangible personal property bought at retail by a buyer acting in the ordinary course of the seller’s business, unless the buyer intends, or knows, that the purchase will hinder, evade, or defeat collection of a tax under this title.

(4) Personal property bought in a casual sale. It does not apply to household goods, personal effects, or other tangible personal property described in section 6334(a) that is bought for less than $1,000, not for resale, in a casual sale. This protection applies only if the buyer has no actual notice or knowledge of the lien and no actual notice or knowledge that the sale is one of a series of sales.

(5) Personal property subject to a possessory lien. It does not apply to tangible personal property subject to a local-law lien securing the reasonable repair or improvement price, against the lien holder if that holder has continuously possessed the property from the time the lien arose.

(6) Real-property tax and special-assessment liens. For real property^*, it does not apply against a lien holder when local law gives that lien priority over earlier security interests and the lien secures: (A) a generally applicable tax based on the property’s value; (B) a special assessment imposed directly on the property to pay for a public improvement; or (C) charges for utilities or public services supplied to the property by the United States, a State, a political subdivision, or an instrumentality of any of them.

(7) Residential property subject to a mechanic’s lien for certain work. For a personal residence with no more than four dwelling units that its owner occupies, it does not apply against a mechanic’s lienor if the contract price with the owner is no more than $5,000.

(8) Attorneys’ liens. For a judgment or settlement amount for a claim or cause of action, it does not apply against an attorney who under local law has a lien on, or an enforceable contract against, that judgment or amount, to the extent of the attorney’s reasonable compensation for obtaining the judgment or settlement. This paragraph does not apply to a judgment or settlement against the United States to the extent the United States offsets it against the taxpayer’s liability to the United States.

(9) Certain insurance contracts. For a life-insurance, endowment, or annuity contract, it does not apply against the insurer: (A) before the insurer has actual notice or knowledge of the lien; (B) after that notice or knowledge, for advances that an earlier agreement automatically requires to keep the contract in force; or (C) after a levy^* is satisfied under section 6332(b), unless and until the Secretary gives the insurer a notice, executed after satisfaction, stating that the lien exists.

(10) Deposit-secured loans. For a savings deposit, share, or other account with an institution described in section 581 or 591, it does not apply against that institution to the extent of a loan secured by the account if the institution made the loan without actual notice or knowledge of the lien.

(c) Protection for certain commercial financing agreements and similar agreements. (1) General rule. To the extent this subsection provides, the lien does not apply to a security interest that arose after the tax lien filing if the interest is in qualified property covered by a written agreement made before the filing and the agreement is a commercial transactions financing agreement, a real-property construction or improvement financing agreement, or an obligatory disbursement agreement. The interest must also be protected under local law against a judgment lien arising from an unsecured obligation at the time of filing.

(2) Commercial transactions financing agreement. (A) Definition. This means an agreement made by a person in that person’s business to lend money to the taxpayer^*, secured by commercial financing security acquired in the ordinary course of the taxpayer’s business, or to buy such security other than inventory. The agreement qualifies only for a loan or purchase made before the 46th day after filing, or earlier if the lender or buyer first had actual notice or knowledge of the filing. (B) Qualified property includes only commercial financing security acquired before that 46th day. (C) “Commercial financing security” means paper ordinarily arising in commercial transactions, accounts receivable, mortgages on real property, and inventory. (D) A person who qualifies because of a purchase is treated as having acquired a security interest in the commercial financing security.

(3) Real-property construction or improvement financing agreement. (A) This means an agreement to make cash payments to finance construction or improvement of real property, a contract to construct or improve real property, or raising or harvesting a farm crop or raising livestock or other animals. For the crop or livestock clause, supplying goods and services counts as paying cash. (B) Qualified property includes only: (i) for construction or improvement, the affected real property; (ii) for a construction or improvement contract, the contract proceeds; and (iii) for a crop or livestock activity, property subject to the section 6321 lien at filing and the crop, livestock, or other animals.

(4) Obligatory disbursement agreement. (A) This means a business agreement to make payments, but only payments required because the rights of someone other than the taxpayer intervene. (B) Qualified property means property subject to the section 6321 lien at filing and, to the extent directly traceable to those payments, property the taxpayer acquires afterward. (C) For a surety agreement guaranteeing a contract, qualified property also includes the guaranteed contract’s proceeds. If the guaranteed contract is to construct or improve real property, produce goods, or provide services, it also includes tangible personal property the taxpayer uses to perform that contract.

(d) 45-day period for making disbursements. The lien does not apply to a security interest arising after filing from payments made before the 46th day after filing, or earlier if the payer first had actual notice or knowledge of the filing, but only if the interest is in property that was subject to the section 6321 lien at filing, is covered by a written agreement made before filing, and is protected under local law against a judgment lien from an unsecured obligation at filing.

(e) Priority of interest and expenses. If the tax lien does not apply against a lien or security interest, that lien or interest’s priority also covers: (1) interest and carrying charges on the secured obligation; (2) reasonable charges and expenses of an indenture trustee or agent holding the interest for its holder; (3) reasonable expenses actually incurred to collect or enforce the obligation, including reasonable attorney compensation; (4) reasonable costs to insure, preserve, or repair the related property; (5) reasonable costs to insure payment of the secured obligation; and (6) amounts paid to satisfy a lien on the property, but only if that lien had priority over the tax lien. Each item has the same priority as the related lien or interest to the extent local law gives it that priority.

(f) Place for filing notice; form. (1) Place. The notice must be filed: (A)(i) for real property, in one office in the State, county, or other subdivision designated by State law where the property is located; (ii) for tangible or intangible personal property, in one office so designated where the property is located, except that a State law merely copying Federal law establishing a national filing system does not create a second filing office; (B) in the clerk’s office of the United States district court for the district where the property is located, if the State has not designated a qualifying office; or (C) in the District of Columbia Recorder of Deeds office if the property is there. (2) Property location. Real property is located at its physical location. Personal property is located at the taxpayer’s residence when the notice is filed. A corporation^* or partnership^* resides where its principal executive office is; a taxpayer outside the United States is treated as residing in the District of Columbia. (3) The Secretary prescribes the notice’s form and content, and the notice is valid despite other laws about those matters. (4) For real property, if State law requires a deed’s filing to be entered in a public index to protect a buyer without actual notice, and the applicable office has an adequate Federal-tax-lien index, the lien notice meets paragraph (1) only if its filing is entered in that index so a reasonable inspection reveals the lien. (5) Filing a lien notice is governed only by this title and is not subject to another Federal law establishing places for filing liens or encumbrances under a national filing system.

(g) Refiling. (1) General rule. If the notice is not refiled as paragraph (2) requires during the required refiling period, it is treated as filed on the date it is filed after that period under subsection (f). (2) Place. A timely refiling works only if it is filed in the office of the prior notice and, for real property, indexed as subsection (f)(4) requires. If the Secretary received written information at least 90 days before refiling about a change in the taxpayer’s residence, a notice must also be filed under subsection (f) in the State of the new residence. (3) Required period. It is the one-year period ending 30 days after 10 years from the tax assessment date, and each one-year period ending when 10 years have passed after the preceding required period ends. (4) If assessment was before January 1, 1962, the first period is calendar year 1967.

(h) Definitions. (1) “Security interest” means a property interest acquired by contract to secure payment or performance of an obligation or to protect against loss or liability. It exists when the property exists, the interest is protected under local law against a later judgment lien from an unsecured obligation, and the holder has given money or money’s worth, to that extent. (2) “Mechanic’s lienor” means a person with a local-law lien on real property or related contract proceeds for services, labor, or materials used to construct or improve the property. The lien begins on the earliest date it is valid under local law against later buyers without actual notice, but not before the person begins providing the services, labor, or materials. (3) “Motor vehicle” means a self-propelled vehicle registered for highway use under a State or foreign country’s law. (4) “Security” means listed debt instruments issued by a corporation or government or political subdivision, stock^*, voting-trust certificates, listed certificates and rights relating to those instruments, negotiable instruments, or money. (5) “Tax lien filing” means filing the notice of the lien imposed by section 6321. (6) “Purchaser” means a person who, for full and adequate money or money’s-worth consideration, acquires an interest other than a lien or security interest that local law makes valid against later buyers without actual notice. For subsections (a) and (section) 6324, a lease, written executory purchase or lease contract, purchase or lease option, and option to renew or extend a lease are treated as property interests if they are not liens or security interests.

(i) Special rules. (1) Actual notice or knowledge. For this subchapter, an organization is treated as having notice or knowledge in a transaction when the fact reaches the individual conducting it, and in any event when due diligence would have brought it to that person’s attention. Due diligence means reasonable routines for communicating important information and reasonable compliance with them. It does not require an individual to communicate information unless that is part of regular duties or the individual has reason to know of the transaction and that the information would materially affect it. (2) Subrogation. A person subrogated under local law to another’s rights in a lien or interest has those rights for a lien under section 6321 or 6324. (3) Forfeitures. A State, county, or other local law-enforcement seizure forfeiture relates back to the seizure date, except where local law gives an intervening claimant priority over the governmental interest. (4) Cost-of-living adjustment. For section 6321 lien notices filed after 1998, each dollar amount in subsection (b)(4) or (7) increases by that amount multiplied by the cost-of-living adjustment under section 1(f)(3), using calendar year 1996 instead of calendar year 2016 in the specified provision. An adjusted amount not divisible by $10 is rounded to the nearest $10.

(j) Withdrawal in certain circumstances. (1) General rule. The Secretary may withdraw a filed lien notice and treat this chapter as if it had not been filed if the Secretary finds that: (A) filing was premature or did not follow administrative procedures; (B) the taxpayer entered an installment agreement under section 6159, unless the agreement says otherwise; (C) withdrawal will help collect the tax; or (D) with the taxpayer’s or National Taxpayer Advocate’s consent, withdrawal is in the best interests of the taxpayer and the United States, as the Advocate determines. The withdrawal is filed at the same office, and the taxpayer receives a copy. (2) Credit agencies. At the taxpayer’s written request, the Secretary must promptly make reasonable efforts to tell credit-reporting agencies and any named financial institution or creditor that the notice was withdrawn. The request must use the Secretary’s required form.