Collateral Agreements

A collateral agreement is executed by you and includes terms, the performance of which are secured (“collateral security”) under the Internal Revenue Code (IRC) 7101 and Treasury Regulation Section 301-7101-1. Property is pledged but not given to the IRS. The only recourse the IRS has against the property is if there is a default in the collateral agreement.

The things that the IRS considers when contemplating a collateral agreement are the risks of not filing a lien since collateral agreements do not offer the same protection to the Internal Revenue Service as does a Federal Tax Lien. They also consider the possibility of you filing for bankruptcy, as well as lien priorities. They are aware of the possibility of state law ramifications when you collateralize real estate or other property (“other acceptable collateral”). Collateral agreements usually involve an IRS attorney, either on the consultation basis with the agent or sometimes directly with the attorney for you. When United States savings bonds are pledged as collateral, you need to be endorsed as one of the conditions.

Note: If Collection is contemplating a collateral agreement for non-assessed taxes, the agent will consult with Area Counsel.

Collateral agreements must be prepared in triplicate by you or your attorney or other representative, and must include the following information:

A. Identification of the parties (you; IRS and third party, if applicable)
B. Aggregate tax liability
C. Method by which you proposes to pay the tax liability
D. Specific dates outlining when required actions will be taken

You or the attorney or other representative will be advised that failure to keep the terms of the collateral agreement will result in the IRS taking the necessary action to secure the collateral.

In addition to the conditions mentioned above, the following are additional requirements for a valid collateral agreement:

A. Proposal for Your payment supported by a properly executed power of attorney or by endorsement of the securities.

B. Provisions for the disposition of any coupons maturing while the security is in the possession of the Government.

C. A condition that the IRS intends to offset any refunds to the delinquent account covered by the agreement until accounts are paid in full or otherwise satisfied.

D. Provision that you must remain current on filing and must not incur any further delinquencies during the term of the collateral agreement.

E. A term that the IRS has a unilateral right to redeem the collateral.

If you or you business have been contacted by the IRS and if you are looking for a tax lawyer to compromise, negotiate, or effectively deal with the IRS, or if you or your business is in need of tax litigation, or tax defense, we, the Michael Ablan Law Firm can help you.With an experienced and aggressive yet honest, trustworthy and friendly legal team consisting of a lawyer with 35 years of experience, specialized paralegals, and a tax accountant, the Michael Ablan Law Firm in La Crosse, WI can help you. We also have offices in La Crescent, Minnesota and Hayward, Wisconsin. Contact us for a free consultation. Our expert legal services are available to you anywhere in the State of Wisconsin including but not limited to the counties of La Crosse, Trempealeau, Monroe, Crawford, Vernon, Grant, Jackson or any other county in Wisconsin or in the state of Minnesota, including all counties surrounding La Crescent, MN, such as Houston and Winona and any other county.

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that, unless expressly stated otherwise, if any U.S. federal tax advice contained in this communication, (including any attachments) is not intended or written to be relied upon or used, and cannot be relied upon or used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction of matter addressed herein.