Lien on Me: Virtual Debtors Prisons, the Practical Effects of Tax Liens and Proposals for Reform
University of Pittsburgh School of Law; Albany Law School
October 12, 2010
University of Louisville Law Review, Vol. 49, 2011
Albany Law School Research Paper No. 10-24
This Article discusses the harm that a notice of federal tax lien can cause an individual as a result of the effect of filing a notice of federal tax lien has on an individual’s credit report. Recent evidence indicates that such filings are often made automatically, without consideration of the assets the individual possesses or whether the government is obtaining priority in anything through its filing. That is, in many cases the government may not be increasing the likelihood it will collect the already owed taxes and may even be decreasing the likelihood that the individual against which the notice of federal tax lien is filed will be able to become compliant with their current or future tax obligations.
Even more troubling, if unpaid, such liens may remain on the individual’s credit report forever. This black mark may make it difficult or impossible for the individual to obtain better housing, employment, or otherwise improve their situation in ways that would permit the individual to return to a place in the system where they could positively contribute, as a taxpayer and as a productive member society. Alternatively, these individuals must become part of the underground economy or rely on the social safety net, draining other government resources.
This Article concludes that a number of changes are required. First, notices of federal tax lien must not be issued without a consideration of whether they will increase the likelihood of collecting the tax liability. Second, the Internal Revenue Code must be changed to require a withdrawal of lien, which treats a notice of federal tax lien as having never been filed, after payment of the tax lien because of the changes in the ways that credit reports are used and the harm that can cause to the government and the individual. Finally, changes are needed to the Fair Credit Reporting Act to require that notices of federal tax lien be removed from an individual’s credit report after the same number of years after the lien becomes unenforceable as other debts because there is no sound policy reason for tax liens to be reported as negative items forever. Indeed such reporting is against both the government’s and individual’s interests.
Number of Pages in PDF File: 34
Keywords: federal tax, tax, tax lien, Internal Revenue Code
Date posted: October 13, 2010 ; Last revised: October 27, 2010