The long-established practice of county recorder offices recording the filing and release of federal tax liens on behalf of the Internal Revenue Service (IRS) may be in danger in California, as 22 counties in the state have told the IRS they will stop recording federal liens due to a fee dispute with the agency. The dispute has culminated with some counties refusing to file additional IRS lien-related public records until the IRS begins to pay the required fees.
The system in place around the country entails the IRS filing a “notice of federal tax lien” with the county recorder when an individual or business fails to pay their federal taxes. The federal tax lien is a public record that formally grants the government the legal right to the debtor’s assets, including property, cars and financial assets they own or acquire while the lien is in place. While the lien does not allow the government to seize assets, it effectively places a hold on the assets until the lien is paid off (i.e. someone with a federal tax lien could not sell or refinance their home while the lien was in place). When the taxpayer pays off the required debt, then the IRS officially removes the lien by filing a “certificate of release.”
Tax lien records are important for creditors attempting to determine a potential debtor’s creditworthiness, as well as for researchers interested in a research subject’s level of civic responsibility. Tax liens previously showed up on credit reports, however a 2017 settlement between the three major credit rating agencies and federal regulators began the process of expunging federal tax liens from credit reports . By April 2018, tax liens were completely removed from credit reports, which makes county recording offices role in recording liens all the more crucial.
The counties in California are handling the dispute in a myriad of ways, with most attempting to maintain an organized index of lien records while nonetheless refusing to file documents where the proper filing fees were not paid. Researchers should be aware, however, that there may be instances where a taxpayer has satisfied a federal tax lien, but the lien has not been recorded as being released as some counties have chosen to hold IRS lien-related documents until the fee issues are resolved. Researchers conducting research on subjects in California should consult with the recorder of the county where their subject lives or conducts business to determine if (and when) they stopped indexing federal tax lien records.