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GlossaryLiensForeclosure

Federal tax lien

2 min read
Short answer
A federal tax lien attaches to all a taxpayer's property for unpaid federal tax. In a foreclosure, the IRS must be given proper notice under IRC 7425 — without it the lien survives the sale entirely. Where notice is given, the United States has a right to redeem for 120 days or the state redemption period, whichever is longer.

A federal tax lien arises in favour of the United States for unpaid federal tax. It attaches to all of the taxpayer's property and rights to property.

For anyone buying at a Minnesota foreclosure sale, it is the encumbrance most capable of turning a good purchase into a disaster.

The notice requirement#

Under IRC 7425, a non-judicial foreclosure of a lien senior to a filed federal tax lien requires notice to the IRS.

Where proper notice is given, the sale discharges the property from the federal lien, subject to the government's right of redemption.

Where proper notice is not given, the federal lien on the property is undisturbed by the sale. The buyer acquires the property and the lien with it.

That is the outcome to be certain about before bidding. A title search showing a Notice of Federal Tax Lien is not by itself fatal — what matters is whether the foreclosing party complied with 7425.

The redemption right, and the Minnesota arithmetic#

Where notice was given, the United States may redeem: 120 calendar days from the date of sale, or the period allowable for redemption under state law, whichever is longer.

Minnesota's ordinary redemption period is six months, which measured from any date is 181 to 184 days.

So in a standard Minnesota foreclosure by advertisement, the federal redemption period is the state period rather than 120 days. A purchaser waiting out a six-month redemption is waiting out the federal window at the same time.

Where a five-week period applies — abandonment, or a postponed sale — the federal 120 days is the longer, and it extends past the state deadline.

That is a real difference and it catches purchasers who assumed title vested when the state period expired.

What redemption costs the government#

Broadly the amount actually paid at the sale, plus statutory additions.

Notably, it does not normally include the purchaser's own expenses — title searches, professional fees, or interest on money borrowed to buy.

Which produces a practical warning: improvements made during the redemption period increase the property's value without increasing what the government must pay to take it. Renovating a property that the IRS may redeem is a poor use of capital until the window closes.

On Torrens property#

Federal liens are among the interests that survive under Minn. Stat. 508.25 whether or not they appear as a memorial on the certificate.

A clean certificate of title is not evidence that no federal lien exists.

Practical steps before bidding#

Search for a Notice of Federal Tax Lien against the owner.

Where one exists, establish whether the foreclosing party gave 7425 notice — because that single fact determines whether the lien survives.

And treat the federal redemption window as running alongside the state one, comparing the two and taking the longer.

Common questions

Does a foreclosure wipe out a federal tax lien?
Only if the IRS was given proper notice of the sale under IRC 7425(c)(1). Without that notice the federal lien on the property is undisturbed by the sale, and the buyer takes subject to it — which is the single most expensive mistake available at a foreclosure auction.
How long does the IRS have to redeem?
120 days from the date of sale, or the period allowable under state law, whichever is longer. Because Minnesota's ordinary redemption period is six months — 181 to 184 days — the state period is the longer one in most Minnesota foreclosures.
Should I improve the property during that period?
Cautiously. Improvements that raise the value make redemption more attractive to the government, and the redemption amount does not include a purchaser's title searches, professional fees or interest on funds borrowed to buy.
Keep reading
Lien priority
The order in which liens are paid from a property, generally determined by recording date but with statutory exceptions that outrank everything.
State tax lien
A lien in favour of the Minnesota Department of Revenue for unpaid state tax, attaching to a taxpayer's property once filed.
Redemption period
The window after a Minnesota sheriff's sale in which the former owner can reclaim the property by paying the sale price plus interest and costs.