Document Type

Article

Publication Date

2014

Keywords

tax, tax policy, tax procedure, tax administration, tax liens, Article 9, Uniform Commercial Code, secured credit

Abstract

I.R.C. § 6323, which governs how the federal tax lien ranks against the interests of the taxpayer’s other creditors, subordinates the tax lien to the claims of other creditors in various ways. Tax lien subordination is commonly justified on the grounds that it enhances taxpayer asset value, facilitates commercial transactions, and reduces monitoring costs for private creditors. This short essay argues, however, that these benefits may be illusory. Tax lien subordination may, in fact, create costs and distortions and may lead to unfair distributive results. This essay suggests that the tax lien priority scheme might be made less costly by reducing its multiple levels of subordination. This could be accomplished in two ways: First, by reducing the magnitude or number of the superpriorities and other prioritized interests; and second, by eliminating the priority of the four horsemen over the un-noticed federal tax lien, or, alternatively, by moving away from a system of pure public notice and toward a semi-private inquiry-based system.

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Library of Congress Subject Headings

Tax liens, Priorities of claims and liens, Bankruptcy--Taxation, Debtor and creditor, Tax administration and procedure

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