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IRS Lien Attached to Sale Proceeds Paid Directly to Taxpayer's Ex-Wife as Alimony

(Parker Tax Publishing July 2022)

The Office of Chief Counsel advised that a federal tax lien recorded against a taxpayer, which attached to monthly alimony payments owed by the taxpayer and paid by a purchaser of one of the taxpayer's businesses as a condition of the sale of the business, was valid. According to the Chief Counsel's Office, the fact that the payments were directed to the taxpayer's ex-wife, and not the taxpayer himself, should not prevent attachment of the lien because the payments were compensation to the taxpayer and were for the benefit of the taxpayer. CCA 202226010.


A taxpayer owed back taxes to the IRS. In order to access the money owed to it by the taxpayer, the IRS recorded a federal tax lien (FTL) against the taxpayer. Prior to the issuance of the FTL, the taxpayer was ordered to pay monthly alimony payments to his ex-wife as part of their divorce settlement. Subsequently, the taxpayer sold his interest in three businesses to a purchaser in exchange for multiple forms of compensation provided by the contract terms. One of the contract terms provided that the purchaser would cause one of the business entities to pay the taxpayer's monthly alimony obligations to the taxpayer's ex-wife.

The Office of Chief Counsel was asked for advice on the priority of an FTL in a situation such as the taxpayer's (i.e., where a taxpayer was ordered to pay monthly alimony payments to his ex-wife as a part of a divorce and the order was issued prior to the FTL arising). The Chief Counsel's Office assumed for purposes of this advice that the monthly payments at issue have occurred and continue to occur as provided for by the contract.

Under Code Sec. 6321, if a person neglects to pay any tax after demand, a lien arises in favor of the government on all property and rights to property, whether real or personal, belonging to such person. Under Code Sec. 6323(a), the IRS's lien is valid against a judgment lien creditor if the IRS files a notice of the lien in accordance with the procedures in Code Sec. 6323(f).


The Chief Counsel's Office advised that the FTL did attach to the monthly alimony payments made to the taxpayer's ex-wife. The Chief Counsel's Office cited two cases in reaching its conclusion. First, in Corwin Consultants, Inc. v. Interpublic Group of Companies, Inc., 512 F.2d 605 (2d Cir. 1975), the Second Circuit held that an FTL attached to a fund comprised of period payments owed to a taxpayer under a severance agreement. Second, in Mantovani v. Fast Fuel Corp., 1980 PTC 514 (S.D. N.Y. 1980), a district court concluded that an FTL attached to a taxpayer's contractual right to proceeds where the court found that the taxpayer's right to payment was not contingent upon future performance by the taxpayer. The Chief Counsel's Office also noted that, in Rev. Rul. 55-210, the IRS ruled that where a taxpayer has an unqualified fixed right, under a trust or a contract, to receive periodic payments or distributions of property, an FTL attaches to the taxpayer's entire right.

Thus, the Chief Counsel's Office advised that, assuming the payments were occurring, they were part of the compensation given to the taxpayer in exchange for his business interests. The fact that the payments were directed to the taxpayer's ex-wife and not the taxpayer himself, the Chief Counsel's Office reasoned, should not prevent attachment of the FTL because the payments were compensation to the taxpayer and were for the benefit of the taxpayer.

However, the Chief Counsel's Office noted that if the alimony obligation had been paid in full, or if the purchaser and taxpayer had otherwise not abided by the arrangement provided for by the contract, then there may be no payments accruing.

For a discussion of the priority of federal tax liens, see Parker Tax ¶260,530.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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