Increased Levels of Pennsylvania Tax Liens
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With the rash of new liens being filed by the PA Department of Revenue - lien filings are up about 50% across the Commonwealth according to the Pittsburgh Post Gazette1, -it's important to understand your rights as a taxpayer, and the related statutes of limitation surrounding the various liens applicable to individual and business taxes in Pennsylvania. In March 2013, the Department of Revenue initiated the software implementation phase of its overall modernization plan2. If you've ever been involved with a system conversion, you will easily understand why a software conversion can yield various exceptions when converting the data. Taxpayer accounts and liabilities are just that - data that is subject to conversion exceptions seen in other implementations. You could analogize it to converting a business's accounts receivable to a new billing and software program. In addition to the exceptions that occur in such a conversion of data, the general rules for the algorithms that apply to each account being converted are often reevaluated in tandem with the conversion (i.e. what's "long overdue" or "uncollectible" in the new system might be simply "past due" in the old).
"What we have seen with various taxpayers is that certain things that were dormant, or untouched for years, have been renewed - and collections have been sought again," says Paralegal and CPA Colleen Artell. "In some cases, the lien was legitimate and the debt was due. In other cases - we believe that the collection tactics, such as placing a lien on business assets, have fallen outside the scope of authority for the Commonwealth to place the lien on the business." To the extent that the Department has met all the rules to evidence their collection efforts in relation to a debt, there may not be a statute of limitation applicable to the filing of a lien to secure their debt against a taxpayer. In many instances however, the lien's validity is subject to a statute of limitation, which applies to the date on which the liability was assessed. "Without belaboring the point, the assessment dates, as well as collection efforts made thereafter, are an integral part of evaluating the appropriateness of the lien," says Managing Attorney Richard Artell. He states further that, "you cannot just assume that because the Department of Revenue filed the lien there is no argument against its appropriateness… rather there are rules that they too must follow and we have seen instances recently where they have stretched the boundaries due mainly to their software conversion…"
With that said, if you receive an unexpected lien notice from the Department, it would be prudent to seek legal counsel before responding or paying the alleged liability. Give yourself enough time, however, to comply with its requirements and avoid further delinquency issues. If the lien issue is not addressed on the assessment notice (if applicable) or upon the notice of lien being filed, the business may be handcuffed in the future in a manner which will prevent it from obtaining financing, selling assets, or procuring certain contracts or licenses from the Federal Government or the Commonwealth of Pennsylvania. Furthermore, if the tax lien is not properly addressed, the business will end up on the Pennsylvania Department of Revenue's online tax delinquency list, which will most certainly affect many of your business relationships, such as your relationship with your business lender. It will also impact your credit score. Simply put, Pennsylvania State Tax liens impose an onerous burden on businesses, with their impact being felt at many different levels.
If you are one of the unlucky businesses that received an unexpected lien notice, we are available to work with you to determine the Commonwealth's authority to file the lien - and your options to clear up the lien before it hinders a future business transaction. In certain instances, you may have options to appeal an assessment from which the lien stems via petition at the PA Department of Revenue Board of Appeals. Decisions at this level can be further appealed at the Board of Finance & Revenue. Finally, decisions at this level can be appealed further to the Commonwealth Court via Petition for Review. Our State and Local Tax Practice Group actively handles appeals throughout each of these stages.
1 - Bill Toland, "Pennsylvania filing business liens at accelerated pace thanks to the new software," Pittsburgh Post-Gazette (Nov. 14, 2014), available at www.post-gazette.com/business/pittsburgh-company-news/2014/11/14/Pennsylvania-filing-business-liens-at-accelerated-pace-thanks-to-new-software/stories/201411120030
2 - Id.