Ruling Clarifies IRS’s Lien Code

A buyer of property cannot be held responsible for an improperly recorded IRS lien unless he knows that the property was transferred fraudulently in the past, a U.S. District Court judge has ruled.

The ruling by Judge Gary L. Taylor clarifies an IRS code about how much a buyer must know about a property’s history before he can be held responsible for the back taxes, David Gauntlett, attorney for the plaintiff, said Monday.

The IRS had contended that Newport Beach-based TKB International owed $250,000 in taxes on a Costa Mesa commercial building it bought in 1989.

In 1984, the IRS had placed a lien on the building for nonpayment of taxes by its former owner, Creative Ways Inc., a Newport Beach-based real estate firm, Gauntlett said.

Because the lien was placed outside of the so-called chain of title, TKB was not obligated to know about it before it bought the building, according to the judge’s decision.