Sonoma, Napa counties battle IRS over fees, leaving lien recording services in limbo

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By the numbers

1,504 – IRS liens and releases recorded in Sonoma County 2018.

$14 – Cost to record a lien or lien release in Sonoma County, equating to $21,056 IRS spent on those services in 2018.

496 – IRS liens and releases recorded in Napa County between July 1, 2018, and June 30, 2019.

$15/$7 – Cost of recording a federal tax lien/releasing a federal tax lien in Napa County.

An attempt by the IRS to pay lower fees on tax records processed by California counties has been met with resistance in Wine Country, as Sonoma and Napa counties have defended their costs while warning the federal government’s move could lead to a halt in such work and funding gaps at the county level.

The Internal Revenue Service last week sent letters to every California county declaring it would no longer pay the full price of recording liens or lien releases in the counties. The agency claimed that a portion of the fees charged by California recorders represent unconstitutional taxes levied on the federal government, according to the letter.

Sonoma and Napa officials flatly deny the IRS reasoning, and have each responded with letters of their own this week saying as much.

“We believe there is no concern with Sonoma County prevailing, but the worry is the impact to the taxpayers if the IRS decides not to pay,” said Deva Proto, Sonoma County’s clerk-recorder-assessor and elections chief.

Napa County Clerk and Recorder John Tuteur told the IRS the county would not process the federal government’s documents until it agreed to pay the fees. In a phone interview, Tuteur was unflinching in his reaction to the IRS letter.

“They’ve lost their minds,” he said.

Proto took a less inflammatory tact, reiterating the county’s written response that cited established court precedent that allows government entities to charge the federal government fees for services provided.

“So we don’t think they have a legal leg to stand on when it comes to our fees,” Proto said.

Sonoma County’s response letter, sent by Deputy County Counsel Linda Schiltgen, contains a veiled warning, perhaps indicating it would join Napa County in refusing to record IRS documents.

“If your department refuses to pay for those services, we will consider other options,” according to the letter.

Proto said IRS officials have not told the county which fees they object to, and San Diego-based IRS spokesman Raphael Tulino said he couldn’t confirm or deny the agency even sent letters, let alone discuss the contents of the correspondence.

Officials with the California State Association of Counties did not respond to multiple calls seeking clarification on what type of behavior from counties the IRS may be targeting.

In the letters, the IRS offers a warning of its own, alleging “unintended and irreparable harm” to residents who rely on lien recordings to make personal and business decisions.

Liens can impact credit ratings, and play a role in mortgage lending and other financial transactions. But Tuteur said the IRS is blowing smoke.

Tuteur said residents can pay the fee themselves if they want a lien release, and he encourages residents to do so while the county’s standoff with the IRS ensues.

Napa County’s fee to any individual or entity to record a tax lien for is $15, and it costs $7 to release a lien. Combined, the county processed about 500 of those filings between July 1, 2018, and June 30.

Sonoma County charges $14 for both services, with 1,504 of those recorded for the IRS in 2018, amounting to about $21,000 in revenue.

By the numbers

1,504 – IRS liens and releases recorded in Sonoma County 2018.

$14 – Cost to record a lien or lien release in Sonoma County, equating to $21,056 IRS spent on those services in 2018.

496 – IRS liens and releases recorded in Napa County between July 1, 2018, and June 30, 2019.

$15/$7 – Cost of recording a federal tax lien/releasing a federal tax lien in Napa County.

The IRS is offering to pay Sonoma County $10 for each service, meaning a total revenue loss of $6,016. Despite the small dollar amount, both Proto and Board of Supervisors Chairman David Rabbitt worry about the precedent the IRS letter may set.

“What are they arbitrarily not going to pay next?” Rabbitt said via text message. “It’s a federal process requirement. The federal government should figure out a way to pay for their process, not us.”

Tuteur said Napa County began rejecting liens and releases Tuesday, and county officials notified title companies and the real estate industry.

“We’re going to sequester what we get. We’re going to hold them here,” Tuteur said. “We’ll wait until it’s resolved and then we’ll go ahead and record them.”

In the meantime, Tuteur said he has reached out to Rep. Mike Thompson’s office, seeking the St. Helena Democrat’s help in pressing the IRS for answers.

Alex Macfarlane, spokeswoman for Thompson’s office, said the congressman is in contact with both the IRS and county officials.

“As Chair of the Select Revenue Measures Subcommittee of the Ways and Means Committee, which has jurisdiction over tax policy, Rep. Thompson will do all he can to help address localities impacted by this issue,” Macfarlane said via email.

You can reach Staff Writer Tyler Silvy at 707-526-8667 or at tyler.silvy@pressdemocrat.com. On Twitter @tylersilvy.

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