Lenders’ Concerns re: a Client’s Corporate Tax Liability

Updated February 13, 2022

If you have a outstanding tax debt, understand why your lender cares and how to resolve it so you can preserve your lending relationship. Watch to learn more!

When federal tax issues arise, don’t wait for the IRS to file a tax lien or issue levies. Be proactive. Fill out the form below to speak with a specialist.

 

Lenders’ Concerns re: a Client’s Corporate Tax Liability

What is a tax lien? Can I get a business loan?

Do I need a lien subordination?

If your business owes money to the IRS, they will file a federal tax lien, which will harm your funding relationship. You might ask, “What is a lien?” Or, more specifically, “What is a tax lien?” A federal tax lien provides notice of your business’s liability to third parties (including your lender), secures the government’s interest on your business’s assets (real and personal property), and establishes priority.

Before funding, a lender files its UCC1 – Uniform Commercial Code 1 document – to secure its interest in the collateral and then begins funding. So long as the lender’s secured interest has priority, it continues funding, which allows the business to grow and take on new projects.

At some point, the IRS will intervene and begin collecting the back taxes. If the corporate tax liability is not paid or resolved quickly, the IRS will assign a Revenue Officer to collect the debt. The IRS trains its Revenue Officers to file the federal tax lien and final notice of intent to levy early in the process, and they frequently do (even before speaking with the business).

The clock starts ticking when the IRS files its lien. Lenders generally maintain priority for 45 days after the lien is filed based on the “45-day rule.” But, on the 46th day, the IRS jumps ahead of the lender because of its “super priority.” Absent an IRS resolution that addresses its interests and concerns, a lender will stop funding because the IRS can levy or seize the business’s accounts receivable – they effectively hijack the funds.

Lenders are concerned about (1) levies and (2) funding in second position behind a federal tax lien. From a 30,000-foot perspective, there’s a two-step solution.

  • Step 1. Installment agreement. The IRS cannot levy a business’s assets, including bank accounts and receivables.
  • Step 2. A lien subordination. Addresses the priority concern by putting the lender back into first position ahead of the IRS.
  • Importantly, there’s a prerequisite. To subordinate a lien, one must secure an installment agreement first.

With the installment agreement and subordination of federal tax lien, we protect the business, protect the lender, and, most importantly, preserve funding.