Tax Law Insights

The South Carolina Department of Revenue (the "Department" or "DOR") files tax liens when a taxpayer fails to timely pay his or her state tax liability. The Department files a tax lien in order to establish its priority to a taxpayer's assets. While South Carolina tax liens are similar to federal tax liens, there are important differences.

A "silent" tax lien arises in favor of DOR whenever a person fails to pay his or tax state taxes. S.C. Code § 12-54-120. DOR generally has ten years from the date of a tax assessment to collect a tax liability by seizing a taxpayer's property. S.C. Code § 12-54-85(E).

The silent tax lien arises by operation of law and is not a public record. It gives DOR the right to seize and sell a taxpayer's property, but does not prevent a taxpayer from otherwise conveying clear title to a third party. The Department will file a tax lien as a public record, however, to prevent a taxpayer from selling property to a third party without first paying his or her tax liability. The tax lien is recorded in the register of deeds office in the county where a taxpayer resides and/or owns real property. The tax lien continues for ten years from the date of filing. S.C. Code § 12-54-120(A)(2)(e).

While federal tax liens are only valid as long as the IRS is permitted to seize a taxpayer's property, South Carolina has taken a different position. DOR, like the IRS, generally has ten years from the date of an assessment to seize a taxpayer's property. Unlike the IRS, though, when a South Carolina tax lien is filed DOR takes the position that it continues to be valid for ten years even if DOR no longer has the right to seize a taxpayer's property. See SC Revenue Ruling #15-6.

Example: Chris Rock filed his 2015 South Carolina income tax return on April 15, 2016. His return reported a liability of $100,000 but he did not pay the liability. DOR sent Chris a letter demanding that he pay his tax liability but Chris decided not to pay the liability. A silent tax lien in favor of DOR arises immediately and gives DOR the power to seize Chris's property. DOR has the power to seize Chris's property until April 15, 2026. On April 1, 2026 DOR files a tax lien in the register of deeds office in Williamsburg County. The tax lien remains valid until April 1, 2036.

While DOR believes a tax lien can remain valid even after DOR can no longer seize a taxpayer's property (generally 10 years from assessment), DOR apparently concedes that it loses the right to enforce a lien by seizing property subject to a tax lien once it loses the general right to seize a taxpayer's property. The tax lien remains of record on the taxpayer's property, however, and in order to transfer clear title by the owner the tax lien must be paid. If a taxpayer with a recorded DOR tax lien can wait for 10 years from the date the lien as recorded, the tax lien will then become unenforceable, DOR should release or expunge the lien, and the taxpayer may then convey clear title to his property.