Property Seizure & Federal Tax Lien Procedure: IRC §6321-§6335 and the Drye Attachment Framework

IRC §6321 provides: "If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." The §6321 lien arises automatically by operation of law upon the conjunction of three events: (1) assessment under IRC §6201; (2) notice and demand under IRC §6303 (operationalized by CP14); and (3) failure to pay. No additional IRS action is required — no NFTL filing, no court order, no notice beyond CP14.

IRC §6322 confirms the timing: "Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed... is satisfied or becomes unenforceable by reason of lapse of time." The lien is sometimes called the "secret lien" because it exists by operation of law before any public notice — a taxpayer who owns real estate, bank accounts, and other property has a federal tax lien attached to all of it from the date of assessment, even though no NFTL appears in public records.

The scope of the §6321 lien is broad, attaching to all property and rights to property: real estate; bank accounts; vehicles; business assets; accounts receivable; stocks, bonds, and financial instruments; intellectual property; pension and retirement accounts (subject to ERISA limitations on enforcement); insurance policies (cash value); trust interests; community property in community-property states. Critically, the lien attaches not only to property owned at the time of assessment but also to after-acquired property — everything the taxpayer acquires after the lien arises is also subject to it.

The Supreme Court's foundational interpretation of what "property and rights to property" means under §6321 came in Drye v. United States, 528 U.S. 49 (1999). The case involved Rohn Drye Jr., who disclaimed his inheritance under Arkansas state law to prevent IRS collection — Arkansas law treated a valid disclaimer as if the disclaimant had predeceased the decedent. Drye argued that under state law he had no property interest to which the federal tax lien could attach.

The Supreme Court rejected this argument in a unanimous opinion by Justice Ginsburg. The Court held that "state law controls in determining the nature of the legal interest which the taxpayer had in the property" but "the consequences that attach to those interests are matters left to federal law." Applying this framework, the Court held that Drye's right to receive his inheritance was a "right to property" within §6321, and his attempt to disclaim it was an exercise of that right — which itself was subject to the federal tax lien under federal law. State-law disclaimer could not defeat the federal lien.

Practitioner application: when analyzing whether a federal tax lien attaches to a particular interest, the two-step analysis is: (1) what does state law give the taxpayer (the property right)? then (2) does federal law treat that interest as "property" or "rights to property" under §6321? This applies to jointly-owned property, trust interests (revocable vs irrevocable), community property, tenancy-by-entirety states, and interests in partnerships and LLCs.

The §6321 statutory lien exists between the taxpayer and the IRS by operation of law — but it is not effective against certain third parties without public notice. IRC §6323(a) establishes the rule: the lien is not valid against purchasers, holders of security interests, mechanic's lienors, and judgment lien creditors until the Notice of Federal Tax Lien (NFTL) is filed. The IRS files NFTL using Form 668(Y)(c).

Per IRC §6323(g), an NFTL is effective for 10 years and 30 days from the date of assessment. The IRS may refile the NFTL within the one-year period ending 30 days after the lien becomes ineffective. Refiling extends the NFTL's effectiveness but does not extend the underlying §6502 CSED. Refiling is recorded on Form 668-F (Refile of Federal Tax Lien).

The IRS sends the taxpayer Letter 3172 (Notice of Federal Tax Lien Filing and Your Right to a Hearing under §6320) within 5 business days of NFTL filing, per IRC §6320(a)(2). Letter 3172 triggers §6320 CDP rights — the taxpayer has 30 days to file Form 12153 requesting a CDP hearing on the lien filing. Equivalent Hearing under Treas. Reg. §301.6320-1(i)(2) is available within one year if the 30-day window is missed.

IRC §6323(a) establishes the four categories of third parties protected against an unrecorded §6321 lien: purchasers, holders of security interests, mechanic's lienors, and judgment lien creditors — each must have their interest perfected before NFTL filing to prevail against the IRS.

45-day rule under §6323(d): security interests in after-acquired property that arose pursuant to a written agreement entered into before NFTL filing have 45-day priority over the NFTL for additional security interests perfected within 45 days of NFTL filing. Critical for revolving credit and inventory financing. §6323(c) provides statutory super-priority protection for commercial transactions financing inventory and accounts receivable.

IRC §6325(a)(1) imposes a mandatory release duty: the Secretary shall issue a certificate of release not later than 30 days after determining that the liability has been fully satisfied or has become legally unenforceable. The IRS issues Form 668-Z (Certificate of Release of Federal Tax Lien). Most NFTLs filed since 1982 contain self-releasing language under §6325(a) — the lien automatically self-releases upon CSED expiration without further IRS action.

IRC §6325(b) authorizes the IRS to discharge specific property from the federal tax lien while leaving the lien attached to all other taxpayer property. Discharge is the standard mechanism for completing property sales when the seller has an active federal tax lien. Filed via Form 14135 per Publication 783; IRS issues Form 669 (Certificate of Discharge). Processing time: 30-45 days; expedited handling available for documented time-sensitive transactions.

IRC §6325(d) authorizes the IRS to subordinate the federal tax lien to another creditor's interest without releasing or discharging the lien. Subordination keeps the IRS lien in place but moves the IRS's priority position below the subordinated creditor. Filed via Form 14134 per Publication 784; IRS issues Letter 4053 (Conditional Commitment to Subordinate) then Form 669 (Certificate of Subordination). Processing time: 30-45 days.

IRC §6323(j) authorizes withdrawal of the public Notice of Federal Tax Lien while the underlying §6321 statutory lien remains. Withdrawal differs fundamentally from release: withdrawal removes only the public notice; release extinguishes the lien. Most useful for credit restoration and title clearing — once the public notice is withdrawn, credit reporting agencies and title companies no longer see the lien. Filed via Form 12277; IRS issues Form 10916 (active lien) or Form 10916(c) (after release).

IRC §6326 provides an administrative appeal of erroneous NFTL filing. The provision applies where at least one of the following is true: (a) the tax liability has been satisfied; (b) the tax liability was assessed in violation of deficiency procedures under §6213; (c) the assessment is barred by the running of the §6502 collection statute; or (d) the NFTL was filed against a person who is not the taxpayer.

Filed by written request to the Collection Advisory Group identified on the NFTL, with supporting documentation. Upon approval, the IRS issues a release stating that the NFTL filing was erroneous — a procedurally distinct path from §6325(a) release. The §6326 release affirmatively acknowledges that the filing was erroneous, which can have evidentiary value in subsequent disputes or credit-restoration efforts.

Most useful when: (a) the underlying assessment has been abated and the NFTL still shows; (b) the NFTL was filed against the wrong person (mistaken identity, name confusion); or (c) the NFTL was filed after CSED expiration. For wrong-person situations, the §6326 release can be limited to specific taxpayers identified on a joint NFTL.

IRC §6331(b) authorizes the IRS to seize tangible and real property to collect unpaid tax: "The term 'levy' as used in this title includes the power of distraint and seizure by any means." Seizure operates under the same statutory levy authority as wage and bank levies under §6331(a) — but applies to tangible/real property rather than intangible property held by third parties.

§6335(f) Sale Request: the owner may request that seized property be sold within 60 days (or longer period specified by the owner). The IRS must comply unless compliance would not be in the best interest of the United States. Filed in writing to the PALS manager; response required within 30 days.

Minimum Bid under §6335(e): established under Policy Statement P-5-35 (IRM 5.10.5), based on forced sale value (typically well below FMV). If no bidder meets the minimum, the IRS may purchase for the government at the minimum bid (property then goes to GSA) or postpone the sale. The purchaser at IRS auction receives Form 2435 (Certificate of Sale); for real property, Form 2434 (Deed) issues only after the 180-day §6337(b) redemption period expires.

IRC §6336 authorizes expedited sale of perishable goods — property which "if not speedily sold, will become greatly reduced in price or value by keeping, or which cannot be kept without great expense." Per Treas. Reg. §400.4-1(b)(2), examples include agricultural products, livestock, fresh inventory, and time-sensitive equipment. The §6336 procedure requires Director of Field Collection determination that the property qualifies as perishable, with a Perishable Goods Criteria and Sale Plan memorandum. The expedited procedure eliminates the 90/180-day Notice of Sale waiting period. The §6337(a) pre-sale redemption right remains available until the expedited sale occurs.