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• Real Estate Tax Liens
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• Non-Profit Organization Tax Liens
• Tax Liens Sales Procedures
• Tax Liens Trends
• Risk Analysis - Tax Liens
• Tax Liens and Competing Claims
• Tax Liens and Statute of Limitations
• Discharging a Tax Lien
• Tax Liens - From the Tax Lien Purchaser's Perspective
• Tax Liens - From the Government's Perspective
• Tax Liens - From the Tax Payer's Perspective
• Negative Effect of Tax Liens on 3rd Parties
• Pitfalls of Investing in Tax Liens
• Pitfalls of Tax Lien Sales for Taxation Authorities and Local Government

Corporate Tax Liens - Federal Tax Liens Against Businesses

When Companies Get in Financial Trouble

The solvency of a company is dependent on its reputation and its net equity. In similar manner to a private citizen, a company is also susceptible to the cost of borrowing and when these debts are unable to be met in an economic downturn, it is usually the case that taxes owed by the company are but one of many debts that a company owes.

When experiencing cash flow difficulty, companies usually maintain their commitment to paying the wages of their employees as a priority in order to continue trading, but often fall behind in payroll tax and other taxation obligations.

For this reason, Federal and State tax authorities administer the same methods of debt collection imposed upon individual citizens who incur a tax debt, by imposing business tax liens on the assets of the corporation.

That being the case, a lien on corporate property is able to be purchased by investors, who provide the tax owing the authority in their purchase price, and receive the right to collection thereof. The holder of a lien is entitled to the preset interest rate penalty as a return on the investment.

The differences in a corporate lien holding to that of a private lien are the consequences of bankruptcy. Certainly, in any event, the holder of lien must follow due process of law, in order to assert a right as creditor, but the alluring features of lien investing that lend themselves to windfall gains through eventual foreclosure of the property are somewhat dampened when applied to corporate liens.

In essence corporate tax liens is considered a secured debt in favor of the lien purchaser, and in the event of further financial demise by the corporation, and eventual bankruptcy, the holder of this lien is far more likely to encounter competing claims of other creditors, purely due to the fact that a corporations dealings are often far wider and less averse to extensive borrowing than that of a private citizen..

The Benefits of Bankruptcy

Further, bankruptcy laws are able to limit the obligations of a failing company to pay interest,and the Supreme Court has ruled that the holder of a nonconsensual claim that is over secured, such as a tax lien, may receive interest but not fees, costs and other charges unless there is an agreement to that effect.

Subsequently, Congress has introduced legislative authority for secured creditors, such as the holder of a State lien to receive interest, reasonable fees, costs and charges, only to the extent that the security is greater than the claim.

For Federal lien holders, the Supreme Court ruling still applies.

A further obstacle to the lien holder is that a corporation is able to raise other defenses such as the statute of limitations, which is often relevant in protracted corporate proceedings, and also estoppels, which under the doctrine of equitable relief, the law is able to apply and grant relief to the failing company depending on the circumstances of the case. If the property upon which the lien is applied has a value that is less than the tax debt owed, the court may find that being under secured; the creditor is not entitled to further interest on the secured portion of the claim.

The purchaser of  corporate tax liens not only faces the inherent task of deciphering the various administrative procedures of different jurisdictions, but also faces a far greater likelihood of contest from either the law itself, even though due process has been followed, or that from competing creditors. Of course, to assume this kind of risk obviously demands a far greater rate of return on the investment, but in no other instance is judicious deliberation more urgently recommended.

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