Five Key Things to Understand About the 45-Day Rule Published May 7, 2024

You may have heard of the 45-day rule, but the intricacies and complexity involved can make it confusing. The rule is dense; it spans Internal Revenue Code (IRC) sections 6323(c) and (d), IRC section 6321, written agreement terms, state laws, and more. It’s natural that something so expansive is tricky to navigate, but understanding it has never been more important.

What is the 45-day rule? 

In summary, IRC sections 6323(c) and (d) grant lenders priority over the federal tax lien to the extent the loan or purchase is made (a) within 45 days of the filing of the notice of federal tax lien or (b) before the lender had actual knowledge of the filing, whichever comes first (45 days from filing or actual knowledge).

Why is it important now? 

In early 2024, the IRS began ramping up enforced collections. For the first time in years, lenders and their customers will be held accountable to federal tax liens and levies. Collection efforts may result in a lien against a taxpayer or business owner’s assets. Eventually, they could also result in IRS levies for your borrowers: the seizure of bank accounts or accounts receivable. 

These funds— which could have otherwise paid loan debts or fueled business growth— could now be redirected to the IRS. Understanding the 45-day rule will help lenders like you protect your portfolios so you can fund with confidence.    

Five key things to know about the 45-day rule:

When handling questions of the 45-day rule, it’s best to consult a tax expert. We’ve included a rundown below of some of the most critical aspects of the rule for your awareness. Keep in mind that each situation will be different, and this is not an exhaustive list of legal advice! 

1. The general rule for secured interests in property is “first in time, first in right.” The party that files a lien first has a right to the taxpayer’s property over those who file liens subsequently.

2. The 45-day rule is an exception to the general rule of priority. The exception applies to revolving assets, e.g., accounts receivable and inventory (for non-revolving assets, e.g., real property and equipment, generally follow “first in time, first in right.”) This exception presents the unique risk that factors need to be aware of.

3. The lender has a window of 45 days to discover the federal tax lien before its lien becomes subordinate to the federal tax lien. During that time, they should be continuing to fund. 

4. If a lender funds beyond the 45th day (the 46th day or after), the lender would be subordinate to the IRS and risk loss of collateral (through IRS levy and/or a suit for tortious conversion of assets/”clawback”).

5. A lender whose collateral can be identified after the filing of a federal tax lien maintains priority subject to the following:

  • The security agreement must pre-date the federal tax lien filing;
  • The holder of the secured interest, i.e., the lender, may make disbursements no more than 45 days after the federal tax lien is filed;
  • The collateral securing those disbursements, e.g., receivables and/or inventory, must be acquired within those 45 days; and
  • At the time of the disbursement, the lender cannot have “actual knowledge or notice” of the federal tax lien.

Want to learn more? Check out our webinar recording, where our Tax Guard experts walk you through some examples and intricacies of the 45-day rule.

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Posted By: David Bohrman

As the VP of Marketing, David is responsible for driving overall marketing strategy for Tax Guard including brand positioning, go-to-market execution, and lead generation programs. For the past 15 years, David has held senior positions in early growth and mature companies, leading marketing, operations, and business development teams. Prior to Tax Guard, David was the Director of Marketing of one of the largest tax consulting firms in the country. He holds a B.A. in English and Philosophy from the University of Vermont.