How the Government Can Collect Back Taxes: New York State Tax Warrants vs. Federal Tax Liens

Many taxpayers are unaware of enforcement procedures that can be used against them to collect back taxes. The difference between how New York and the IRS collect on that money may not seem crucial. However, it is important to understand how New York State tax warrants and federal tax liens work in order to avoid them or take appropriate steps to challenge them.

What are federal tax liens and New York tax warrants?

A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The IRS doesn’t need to actually file a lien. If a tax isn’t paid after a formal request, the Code grants the IRS an automatic lien against all of a taxpayer’s property and rights to property. This differentiates the IRS from other creditors who need to get a judgment in order to forcibly collect monies due. The IRS’ “silent lien” even attaches to property acquired after the assessment itself. However, the IRS files a Notice of Federal Tax Lien in order to establish collection priority.

A New York State tax warrant is a legal judgment and notice for priority. In order to take most tax collection actions, New York State must first file a tax warrant. It acts as a perfected lien upon the taxpayer’s real and personal property when filed, and enables New York State to take certain collection action against his/her real and personal assets. A tax warrant serves as a perfected security interest and ensures that the State will get paid ahead of subsequent creditors.

How can they affect you?

Both federal tax liens and New York State tax warrants have a significant impact on your assets, including personal and real property. They also adversely affect your credit. A lien is public and searchable and shows up on your credit report for 7 years. A tax warrant is a public record on file at the county clerk’s office and with the Secretary of State. It can be found by searching the database on the Department of State’s website. The Tax Department also publishes a list of the Top 250 business and individual warrants, which is updated monthly.

How long do they last?

The IRS code gives the IRS a limited amount of time to collect a tax liability which is 10 years from the date of assessment.

Tax warrants are good for 10 years against real property, and 20 years against personal property. The Statute of Limitations on collections begins on the first day that a tax warrant could have been filed. In addition, if the State does not file a warrant for a personal income tax within 6 years, the liability will be extinguished.

Which one takes priority?

The IRS’s silent lien can take priority over the New York State tax warrant even when no Federal Tax Lien has been filed. The IRS’s silent lien begins on the date of assessment while a New York State warrant is based on date docketed. Consequently, if the liabilities are for the same period, the IRS lien usually takes priority over New York State.

What are the taxpayer’s appeal rights?

There are no collection appeal rights against a New York State tax warrant and the state does not give notice to the taxpayer until after the warrant is filed.

The IRS does afford Collection Due Process (CDP) rights. A taxpayer has a CDP right to protest the filing after the fact. A Collection Appeals Proceeding can also be commenced before the Federal Tax Lien is filed.

Tax liens and tax warrants have serious consequences so you need to act quickly if you want to get rid of them. There are several remedies available to qualified taxpayers to address liens and warrants. If you are or could be subject to a lien or warrant, contact us for a consultation.