What You Need to Know About Federal Tax Liens

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Written by Amber Westover | Last Updated November 7th, 2019
Amber is currently a Digital Marketing Strategist at Best Company. She is passionate about learning and researching. Her interests include traveling, eating sushi, painting, and reading Agatha Christie novels.

(This article is 1 of 15 chapters in The Definitive Guide to IRS Debt Forgiveness. Return to the guide to get the full explanation of IRS Debt Forgiveness.)

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If you do not pay your federal taxes the government will often impose a tax lien. A tax lien is the government's legal claim to your property, both current and future holdings. It does not indicate an immediate seizure of assets, rather it provides assurance that the IRS will be paid.

In the result of a sale, the government will receive the proper payment for owed back taxes before other creditors are paid and before you receive any money. This lien establishes the priority of their claim to your assets. The amount of the lien is never more than the amount of taxes you owe.

The IRS will also file a Notice of Federal Tax Lien. This public document informs creditors of the IRS' claim to your property. The IRS has a 10-year window to file a lien, as long as the taxes remain unpaid.

When and Why Are Tax Liens Imposed?

Prior to receiving a federal tax lien the IRS will assess the amount of taxes you owe and send you a Notice and Demand for Payment. This document outlines the amount of taxes you owe and sets a clear due date. If you cannot pay the full amount, you can contact the IRS and discuss your other options, such as an installment agreement, offer in compromise, or request for delayed collections.

However, if you do not pay the debt by the designated time and do not make arrangements with the IRS you may receive a tax lien. Tax liens are advantageous for the IRS because they prioritize their claim and provide some assurance that they will be able to collect back taxes.

What Are the Consequences of a Tax Lien?

Tax liens have many consequences:

  • Damaged credit
  • Difficult to obtain new lines of credit
  • Difficult to sell real estate
  • Seizure of assets

A Notice of Federal Tax Lien is a public document and appears on your credit report. It often lowers your credit score. As a result it may make it difficult for you to get loans, open new credit cards, or make large purchases.

In addition, liens may make it difficult to sell your property. Buyers will want the lien removed before purchasing your house. Often a discharge of lien or subordination will be necessary before you can sell your house.

Finally, if your taxes remain unpaid and you do not negotiate an agreement or settlement with the IRS they can impose a tax levy. The federal government then has the right to seize your property including your wages, bank account, retirement account, house, and car.

How Do You Get Rid of a Tax Lien?

After receiving a tax lien you may request a Collection Due Process hearing. You may contest the lien or propose alternative agreements to the IRS. If you are dissatisfied with the hearing you can appeal the decision. If you cannot come to an agreement with the IRS, your alternatives include the following:

  • Pay your taxes in full
  • File for a discharge of property
  • File for a subordination
  • File for a withdrawal

The most obvious and arguably best solution to a tax lien is to pay the amount owed. You can design a payment plan to help you achieve your goal. Once you have paid off all your taxes you can file for a Certificate of Release of Federal Tax Lien.

A discharge of property removes the lien from a specific property. There are only a few circumstances where the IRS will grant this type of release. For instance, if the property's value is equal to twice the amount of debt (tax liability and mortgage debt). Additionally, if the sale of the property allows part of the debt to be satisfied, often the interest.

On the other hand, subordination does not alter a lien, it merely changes the order of creditors' claims. With a subordination, other creditors will receive their money before the IRS. This may be necessary when you try to sell your property.

Finally, a withdrawal removes the lien but does not alter the amount of tax debt. This is often granted if you enter into a direct debit installment agreement with the IRS.

How Can a Tax Relief Company Help You?

While dealing with taxes liens you may need advice and support. If you have paid your taxes but the lien has not been released a licensed tax professional can assist you. Many companies such as Tax Defense Network provide assistance with tax liens. These companies can help you understand your options and advocate on your behalf. Top rated tax relief companies can also help you resolve your debt prior to the installment of tax liens.

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