Understanding a Federal Tax Lien

Federal Tax Lien

A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:

  • Assesses your liability;
  • Sends you a bill that explains how much you owe (Notice and Demand for Payment); and
  • You neglect or refuse to fully pay the debt in time.

The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property.

How to Get Rid of a Lien

Paying your tax debt – in full – is the best way to get rid of a federal tax lien. The IRS releases your lien within 30 days after you have paid your tax debt.

Options: When conditions are in the best interest of both the government and the taxpayer, other options for reducing the impact of a lien exist.

  • Discharge of property — Allows property to be sold free of the lien.
  • Subordination — Does not remove the lien, but allows other creditors to move ahead of the IRS, which may make it easier to get a loan or mortgage.
  • Withdrawal — Removes the public notice and assures that the IRS is not competing with other creditors for your property.

How a Lien Affects You

  • Assets — A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.
  • Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.
  • Business — The lien attaches to all business property and to all rights to business property, including accounts receivable.
  • Bankruptcy — If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.

In addition to having the IRS legally claim rights to your personal property and assets they will also notify creditors of the lien. That means the status of your tax lien is made public to landlords, employers or any other entities with relevant interest in your financial status. This can affect your future opportunities to open new lines of credit until your IRS debt is resolved and the lien is taken off your property.

Often the lien will still show on your credit even after your debt has been satisfied but it will notify creditors that the account has been settled. In some cases you may negotiate with the IRS to remove the lien from your credit completely but this is never guaranteed. The sooner you take action to resolve your IRS debt the more likely you are to avoid permanent credit consequences.

Avoid a Lien

You can avoid a federal tax lien by simply filing and paying all your taxes in full and on time. If you can’t file or pay on time, don’t ignore the letters or correspondence you get from the IRS. If you can’t pay the full amount you owe, payment options are available to help you settle your tax debt over time.

Lien vs. Levy

A lien is not a levy. A lien secures the government’s interest in your property when you don’t pay your tax debt. A levy actually takes the property to pay the tax debt. If you don’t pay or make arrangements to settle your tax debt, the IRS can levy, seize and sell any type of real or personal property that you own or have an interest in.

Get Help

Contact us immediately if you have received a Notice of Federal Tax Lien from the IRS so we can discuss your situation and options.

 

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