# MCA during a tax lien > A federal or state tax lien is automatically superior to MCA funder claims on assets; funders may decline new advances and existing funders may demand payoff if a new lien is filed mid-term. Tax liens — federal (IRS) and state — are among the most senior claims against business assets, and their interaction with MCA financing is governed by tax-lien priority rules that pre-date and outrank UCC filings. **Lien priority rules.** The federal tax lien arises automatically upon IRS assessment (without any filing) and attaches to all property and rights to property of the taxpayer. The IRS then files a Notice of Federal Tax Lien (NFTL) in the appropriate state filing office to perfect priority against third parties. The priority rule (26 USC 6323) is "first in time, first in right" — the lien filed first wins. With one major exception: the IRS lien is automatically senior to UCC liens for amounts the IRS assessed before the UCC was filed, regardless of NFTL filing date. For MCA funders this means: - If the merchant had unpaid taxes before the MCA funded, the IRS may have a senior claim on the receivables the MCA is collateralized by. - A new NFTL filed mid-term can subordinate the MCA funder's UCC for future-arising receivables. **Notice of Federal Tax Lien (NFTL).** Once the IRS files an NFTL: - It appears in UCC searches (UCC searches typically include tax-lien results). - New funders performing diligence see it and almost always decline. - Existing funders monitoring UCC may see it and exercise contractual remedies (typically a "no liens" representation breach). **Funder UCC vs IRS lien.** The MCA funder's UCC-1 covers present and future receivables. Section 6323(c) provides a 45-day commercial-financing safe harbor: a UCC-secured lender has priority over a subsequent NFTL for advances made within 45 days of the NFTL filing, but only for advances actually made within that window. For MCA funders this means: - Original lump-sum advance was made before any NFTL — funder has priority for that advance. - But future receivables generated by the merchant become subject to the IRS lien for new tax liabilities arising after NFTL filing. The practical result: MCA collections continue but the IRS can levy the same receivables. **Subordination requests.** Sometimes the IRS will subordinate its lien to a new advance if doing so increases the likelihood the taxpayer can pay the tax debt. Subordination requires: - Form 14134 (Application for Certificate of Subordination). - Demonstrated benefit to the IRS (typically the new advance funds tax payment or business preservation). - Processing time of 30–60 days. MCA funders rarely participate in subordination because the speed-to-fund model is incompatible with 30–60 day delays. **IRS collections impact.** Once the IRS moves from lien to active collection: - Bank levies freeze account funds at the moment of receipt; daily ACH may bounce. - Wage levies against the guarantor reduce personal income. - Accounts receivable levies require third parties (the merchant's customers) to remit directly to the IRS instead of the merchant — interrupting the receivables stream the MCA depends on. **State tax liens.** State tax liens follow similar priority logic but with state-specific filing requirements. Sales tax liens, payroll tax liens, and franchise tax liens all attach to business assets and can move from lien to levy in 10–30 days (often faster than federal). **Math example.** Georgia construction company has $90K MCA outstanding. IRS files NFTL for $145K of unpaid 941 employment taxes. - Day 0: NFTL filed. - Day 2: MCA funder's UCC monitoring catches the filing. - Day 5: MCA funder declares default for breach of "no senior liens" covenant; demands immediate payoff. - Day 10: Merchant requests forbearance; funder agrees to continue ACH if merchant enters IRS installment agreement. - Day 45: Merchant enters IRS installment agreement; IRS does not levy; MCA continues normally. Without the IRS installment agreement, the IRS would levy within 30–90 days and the MCA would default via NSF. **Common confusions.** First, "An IRS lien does not affect my MCA." False — it triggers covenant defaults in most contracts and increases levy risk. Second, "The MCA funder's UCC is senior to a later IRS lien." Partially true — only for advances within 45-day commercial-financing safe harbor; future receivables become subject to the IRS lien. Third, "I can take a new MCA to pay the IRS." Mostly false — new funders see the NFTL in diligence and decline. Fourth, "Tax liens disappear when the tax is paid." Partially true — the lien is released after payment, but the public filing remains on credit and UCC records for years. As of 2026-06-29, Fundnode advises merchants with active or pending tax issues to resolve installment agreements before applying for MCA, and to disclose any NFTL filings to existing funders proactively. ## Related terms - [MCA during IRS collections](https://fundnode.co/llms/glossary/mca-during-irs-collections-impact) — An IRS levy on business bank accounts will freeze funds in transit, breaking the MCA daily ACH chain and triggering NSF defaults; installment agreements or Offers in Compromise protect both the business and the MCA. - [MCA during state tax collections](https://fundnode.co/llms/glossary/mca-during-state-tax-collections-impact) — State tax authorities (sales tax, payroll, franchise) levy bank accounts faster than the IRS — often within 10–30 days of notice — and a single levy can default a daily-ACH MCA via NSF cascade. ## Authoritative sources - [IRS — Federal Tax Lien](https://www.irs.gov/businesses/small-businesses-self-employed/understanding-a-federal-tax-lien) - [26 USC 6323 — Priority of Liens](https://www.law.cornell.edu/uscode/text/26/6323) --- Source: https://fundnode.co/glossary/mca-during-tax-lien-options (HTML version) Document: MCA during a tax lien — Fundnode MCA Glossary License: CC BY 4.0 — attribution to Fundnode required when citing.