Those who have past due tax bills or back taxes may find themselves facing a tax lien from the IRS. This is when the federal government places a legal claim against your property to secure the amount of tax debt a taxpayer owes. This is the government’s way of making sure they will get paid, by putting a claim on any real estate, personal property and financial accounts. Unlike a levy, the property is not seized with a lien. Money is only collected when the property is sold and/or accounts are closed. This is one step before having a levy placed against any personal property or assets.
When you, as the taxpayer, owe any back taxes, the IRS puts your balance due on their books and assesses your liability.
It then sends you a bill, complete with details on the amount owed. This is your Notice and Demand for Payment. Should you neglect or refuse to pay your tax bill in full at the time, the IRS has the legal authority to place a lien on your property and bank accounts. This is when the IRS files a Notice of Federal Tax Lien. The Notice of Federal Tax Lien is a public document which notifies all of your creditors the government has a legal right to your property.
A lien will affect you as the taxpayer in a variety of different ways. The lien is attached to all of your personal property, including homes, vehicles, boats and any future assets you acquire while the lien is in place. Once a lien is in place, it could limit your ability to get new credit. Plus, should you file for bankruptcy, your federal tax bill is exempt and once your bankruptcy is finalized you will still owe the full amount of your tax bill.
There are ways to avoid and eliminate a federal tax lien. The best way to do this is to pay your tax bill in full. Within 30 days of your tax bill being paid in full, the IRS will release the lien it has placed on your property. When it is in the best interest of both the taxpayer and the IRS, there are other options to helping get a tax lien removed.
It is possible to have a lien removed from a specific property. A discharge of property is available after the IRS reviews and determines your eligibility. Other programs to help with liens include subordination, where other creditors are placed before the IRS and a withdrawal, where the IRS removes the public Notice of Federal Tax Lien to assure it is not competing with other credits when trying to collect the money owed. You may also be able to make payment arrangements allowing for a withdrawal to be issued and the lien lifted after the final payment.
If you find you have a lien placed against your property or are close to one being issued, do not give up. Contact the IRS or a tax professional to see what options are available. It might be possible to have the lien lifted through various programs.
For more information go to our tax problems services page.