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Senate Bill To Modernize US Federal Tax Lien System

by Mike Godfrey, Tax-News.com, Washington

19 April 2007


Citing $570 million in cost savings for federal taxpayers, Sen. Carl Levin, (D-Mich.), and Sen. Norm Coleman, (R-Minn.), have introduced legislation to modernize the federal tax lien system by moving it from paper-based filings in local recording offices to electronic filings on a national tax lien registry accessible through the internet.

“Outdated laws are forcing the IRS to waste taxpayer dollars on an old-fashioned, inefficient, and burdensome paper tax lien filing system that could be easily replaced by a modern electronic filing system that could save taxpayers a half a billion dollars over the next ten years,” explained Levin, continuing: “Using a centralized, electronic filing system instead of a decentralized system requiring tax liens to be filed on paper in over 4,000 local recording offices across the country would save millions of taxpayer dollars, while actually improving taxpayer service. Liens would be filed faster, errors would be easier to correct, and, once resolved, liens could be released quicker - in 10 days instead of the 30 days now permitted.”

“The current federal tax lien system is costly, antiquated, and generally unreliable. Tax liens are an essential tool to recover unpaid taxes, which is why we need to bring the system into the twenty-first century,” added Coleman. “Our legislation is a common-sense solution that would modernize the tax lien system and save more than $500 million over the next ten years. In short, the bill would enable the IRS to file federal tax liens electronically and would post all federal tax liens on the IRS website. Registering federal tax liens on-line will dramatically reduce paperwork and will save more than $220 million dollars in filing fees alone. Posting the liens on-line will make tax lien information more readily available to the public and will make it easier for federal contracting officials to make sure that the federal government is not handing over hard-earned taxpayer dollars to tax-cheating federal contractors.”

Tax liens are a key tool used by the IRS to collect funds from persons who are delinquent in paying their taxes. Notices of tax liens must be made public. Currently, tax lien notices are made public by filing them in one or more of 4,100 local recording offices.

The bipartisan Tax Lien Simplification Act is the result of investigations into abusive tax shelters, offshore tax havens, and tax delinquent federal contractors conducted over the last four years by the US Senate Permanent Subcommittee on Investigations, on which Levin serves as the Chairman and Coleman serves as the Ranking Member. During the course of those investigations, the Subcommittee learned of the existing, decentralized system for filing federal tax liens and the high costs of maintaining it. The Internal Revenue Service, for example, maintains a service center dedicated to monitoring dozens of varying local requirements regulating the format and legal styling applicable to tax lien filings; preparing those liens in the proper format; requesting local officials to file the liens; paying lien filing fees; tracing and replacing lost filings; correcting errors; and, once resolved, releasing appropriate liens.

The bill would replace the local filing system with a centralized, federal tax lien registry that would be operated by the IRS and made accessible and searchable by the public on the internet at no cost. Each federal tax lien would use the same format and be made effective from the date and time of its recording in the national registry, in the same manner as now occurs with local filings. Once the underlying tax liability was resolved, the IRS would have 10 days instead of the current 30 days to release the tax lien and remove it from the registry.

The bill would give the Treasury Secretary authority to issue regulations or other guidance for the tax lien registry. The Treasury would be required to make the registry secure and prevent data tampering. Before the registry was implemented, the Treasury Secretary would also be required to review the information currently included in public tax lien filings to determine whether any of that information should be excluded or protected from public viewing on the internet. For example, the Treasury Secretary would be expected to prevent the disclosure of social security numbers that are currently included in many public tax lien filings, but, if disclosed on the Internet, could facilitate identity theft. The bill is thus expected to provide greater protection of some taxpayer information than occurs in current tax lien filings.

The bill would require the registry to be operational by January 1, 2009, but would allow continued use of the existing local filing system for an appropriate time to ensure a smooth transition.

The IRS has estimated that, over ten years, the new system would result in taxpayer savings of approximately $570 million. The savings would come from the elimination of state filing fees, IRS personnel costs, travel costs related to local filing problems, and the cost of lost taxes when the IRS makes an error, or a tax lien filing is misplaced or delayed.


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