By Noah Green, CPA, CFE, for Sheepdog Tax Resolution.

The short version

A filed Notice of Federal Tax Lien does not mean the IRS wins every priority fight. It means the IRS has put the world on public notice, and that notice changes who gets paid first when another creditor, buyer, lender, mechanic, or judgment creditor is competing for the same property. The main rule is simple enough to state: before the IRS files its notice, four protected classes can beat the federal tax lien. After filing, the IRS usually moves ahead, but Congress carved out specific superpriority and financing exceptions. When the lien is valid but the transaction needs another creditor to move ahead, the remedy is usually not release. It is subordination under section 6325(d).

What the law actually says (primary authority first)

Start with the boundary from the rest of this series: the lien itself arises under Internal Revenue Code section 6321 after assessment, notice and demand, and nonpayment. Section 6322 makes that lien effective from the assessment date and keeps it alive until the liability is satisfied or becomes unenforceable by lapse of time.

Section 6323(a) is different. It does not decide whether the lien exists between the IRS and the taxpayer. It decides whether the lien is enforceable against four protected classes before the IRS files its Notice of Federal Tax Lien in the proper public office:

purchasers;
holders of security interests;
mechanic’s lienors; and
judgment lien creditors.

So the practical translation is this: filing an NFTL protects the IRS’s priority against protected third parties. It does not create the lien, and it does not make the tax debt more valid than it was the day before filing. That is why a place-of-filing defect is usually a priority problem, not a validity problem, as explained in “Where the IRS Files Matters: Place-of-Filing Defects Under the Uniform Federal Lien Registration Act.”

The definitions matter because these labels are not casual words. Section 6323(h) and Treasury Regulation 301.6323(h)-1 define the protected statuses. A holder of a security interest generally needs a written security agreement, existing property, money or money’s worth, and protection under local law against a later judgment lien creditor. A mechanic’s lienor is protected for services, labor, or materials connected with construction or improvement of real property. A judgment lien creditor needs more than a judgment on paper; for a money judgment, the lien must be perfected against the property involved.

The old priority rule still sits behind this statute. The Supreme Court in United States v. City of New Britain used the common-law rule that the first lien in time is first in right and tied priority to whether the competing lien was choate, meaning the lienor, property, and amount were established. In United States v. Security Trust & Savings Bank, the Court treated an attachment lien as inchoate before judgment and let the federal tax lien win even though the attachment came first under state timing. Congress then softened parts of that harsh federal priority system through section 6323, especially after the Federal Tax Lien Act of 1966. But the lesson survives: state law tells you what property rights exist; federal law decides how a federal tax lien ranks against them.

After section 6323(a), the statute has three big carveout groups:

Superpriorities, section 6323(b). These are interests that can beat a filed NFTL in specific settings, such as certain securities, motor vehicles, retail purchases of personal property, casual sales, possessory repair liens, real property tax and special assessment liens, limited residential repair liens, attorney’s liens, certain insurance contracts, and deposit-secured loans.
Financing agreement protections, section 6323(c). These protect certain commercial transactions financing, real property construction or improvement financing, and obligatory disbursement agreements when the statutory conditions are met.
The 45-day disbursement rule, section 6323(d). This protects certain security interests that arise from disbursements made within 45 days after the NFTL filing, or sooner if the lender gains actual knowledge of the filing before advancing funds.

Finally, section 6325(d) is the remedy when priority needs to be changed by agreement. A certificate of subordination does not release the lien and does not erase the tax. It lets a named creditor move ahead of the United States as to specific property, usually because the IRS receives value now or because moving the creditor ahead is expected to increase what the IRS ultimately collects.

How it works in practice

Priority fights are usually about a transaction, not an abstract legal ranking. A lender will not refinance if it has to sit behind the IRS. A buyer will not close if title is clouded by an NFTL. A contractor wants to know whether a mechanic’s lien beats the tax lien. A judgment creditor wants to know whether recording the judgment before or after the NFTL matters.

The working order is:

Confirm the lien exists. Check assessment, notice and demand, and the collection statute. If the lien is unenforceable, the remedy is release, not subordination. That is the subject of “When the Clock Beats the Lien: CSED and the Unenforceable Federal Tax Lien.”
Confirm the NFTL filing date and place. Section 6323 priority turns on the filed notice, and a wrong office can change the priority result. That is the place-of-filing article in this series.
Classify the competing party. Is the other party actually a purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor as the statute defines those terms? If not, the four protected-class rule may not help them.
Check for a statutory exception. Even after an NFTL is filed, a superpriority under section 6323(b), a financing agreement under section 6323(c), or a 45-day disbursement under section 6323(d) may move another interest ahead.
If the IRS is senior but the transaction makes sense, consider subordination. Use Form 14134, backed by the math showing either payment for the subordinated interest or increased ultimate collection.

A quick refinance example shows the difference. Say a taxpayer owns a home worth $400,000. A first mortgage is $250,000. The IRS filed an NFTL for $90,000 after the first mortgage. A new lender will refinance only if it can take first position for a $270,000 loan, with $20,000 of the proceeds going to the IRS and the old mortgage paid off. If the IRS refuses to subordinate, the refinance fails and the IRS may collect nothing today. If the IRS subordinates under section 6325(d)(1), it can receive the $20,000 payment and let the new lender move ahead on that property. If the economics instead show that lower payments will make collection more likely over time, the request may be framed under section 6325(d)(2). In either case, the lien survives; only the order of payment changes.

That is the main practical distinction. Release extinguishes the lien. Discharge removes the lien from one specific property. Subordination keeps the lien in place but changes who stands ahead of the IRS on that property. The remedy map is covered in “Getting the Lien Off: Withdrawal, Release, and the Erroneous-Filing Appeal.”

The numbers

Federal tax lien priority is a countable map. The table below keeps the categories straight and ties each one to the controlling authority.

Rule	Number to remember	What it covers	Authority
Protected classes before NFTL filing	4 classes	Purchasers, holders of security interests, mechanic’s lienors, judgment lien creditors	IRC 6323(a); Treas. Reg. 301.6323(a)-1
Superpriority categories after NFTL filing	10 categories	Securities, motor vehicles, retail purchases, casual sales, possessory repair liens, real property taxes and assessments, limited residential repair liens, attorney’s liens, certain insurance contracts, deposit-secured loans	IRC 6323(b); IRM 5.17.2.6.5
Commercial transactions financing	45-day outer window	Certain loans or purchases under a qualifying pre-filing financing agreement, limited by actual knowledge	IRC 6323(c)(2); IRM 5.17.2.6.6
Real property construction or improvement financing	3 protected financing settings	Construction or improvement of real property, construction-contract financing, and crop or livestock financing	IRC 6323(c)(3); IRM 5.17.2.6.6.2
Obligatory disbursement agreements	1 separate financing family	Letters of credit and surety-type obligations where a third-party claim triggers the duty to pay	IRC 6323(c)(4); IRM 5.17.2.6.6.3
Post-filing disbursement protection	45 days, shortened by actual knowledge	Certain security interests arising from disbursements after the NFTL filing	IRC 6323(d); IRM 5.17.2.6.6.4
Subordination bases	2 practical bases for income-tax liens	Payment to IRS for the subordinated interest, or increased ultimate collection from moving another creditor ahead	IRC 6325(d)(1) and (d)(2); IRM 5.12.10.6

These are not shortcuts around the lien. They are ranking rules. The federal tax lien can be fully valid against the taxpayer and still lose priority to a protected creditor under the right subsection.

What this means for you

If there is no sale, refinance, lender, buyer, mechanic, foreclosure, judgment creditor, or other competing claimant, a priority argument may not change much today. The lien still attaches, and the IRS can still collect from you. Priority becomes valuable when the question is who gets paid first from a particular property or transaction.

If another creditor is involved, do not start with a generic request to “remove the lien.” Start with the ranking:

Was the other creditor protected before the NFTL was filed? If yes, section 6323(a) may put them ahead.
Does a superpriority apply even after the filing? If yes, section 6323(b) may control.
Is this a financing agreement or future-advance problem? If yes, section 6323(c) or (d) may protect the lender.
Is the IRS senior but the deal would still help collection? If yes, section 6325(d) subordination is the remedy to consider.

Documentation drives the result. For a lender, that means the note, security agreement, recording or filing proof, dates of disbursement, proof of money advanced, payoff statements, title report, appraisal, and the proposed settlement statement. For a mechanic or judgment creditor, it means the state-law steps showing when the lien became protected against later purchasers or judgment creditors. For subordination, it means a transaction package that shows what the IRS receives or why the IRS is economically better off.

There is no guaranteed result in any tax matter. Some priority arguments fail because the creditor did not perfect in time. Some subordination requests fail because the numbers do not improve the IRS’s position. The value of the exercise is that it replaces guessing with a ranked, sourced analysis: who is protected, when the protection became effective, and whether the statute gives the IRS a reason to step back.

How Sheepdog Tax Resolution can help

When a lien blocks a sale, refinance, or creditor negotiation, I build the priority stack before recommending a form. That means reading the NFTL, title report, payoff statements, security documents, judgment records, and transaction math against sections 6323 and 6325(d), then deciding whether the path is a priority objection, a discharge, or a subordination request. The practice is run by one person who is both a CPA and a Certified Fraud Examiner (CFE), and it is veteran-owned. There is no guaranteed result, and I will tell you if the IRS is senior and the numbers do not support subordination. To start a lien priority review, write to noah@sheepdogtax.com.

Sources (primary authority first, then secondary commentary)

IRC 6321, Lien for taxes (Legal Information Institute, Cornell Law School).
IRC 6322, Period of lien (Cornell LII).
IRC 6323, Validity and priority against certain persons (Cornell LII).
IRC 6325, Release of lien or discharge of property (including subordination under subsection (d)) (Cornell LII).
Treasury Regulation 301.6323(a)-1, Purchasers, holders of security interests, mechanic’s lienors, and judgment lien creditors (eCFR).
Treasury Regulation 301.6323(h)-1, Definitions (Cornell LII / eCFR).
United States v. City of New Britain, 347 U.S. 81 (1954) (Cornell LII, Supreme Court opinion text).
United States v. Security Trust & Savings Bank, 340 U.S. 47 (1950) (Cornell LII, Supreme Court opinion text).
United States v. McDermott, 507 U.S. 447 (1993) (Library of Congress, U.S. Reports PDF).
Internal Revenue Manual 5.17.2, Federal Tax Liens (IRS legal reference on federal tax lien priority).
Internal Revenue Manual 5.12.10, Lien Related Certificates (IRS procedures for discharge, subordination, and related certificates).
Form 14134, Application for Certificate of Subordination of Federal Tax Lien (IRS).
Publication 784, How to Apply for a Certificate of Subordination of Federal Tax Lien (IRS).
William F. Young Jr., “Priority of the Federal Tax Lien,” University of Chicago Law Review, Vol. 34, Iss. 4, Article 2 (1967), DOI 10.2307/1598992, secondary law-review background on federal tax lien priority.
Theodore N. Farris, “Security Interests in Insurance Payments on Destroyed Collateral as Proceeds and Their Priority Under the Federal Tax Lien Act of 1966,” Fordham Law Review, Vol. 45, Iss. 3 (1976), secondary law-review background on security interests and the Federal Tax Lien Act of 1966.

Prepared by Noah Green, CPA, CFE.

Lien Priority vs. Other Creditors: The Protected Classes and Subordination