Understanding Tax Liens: Everything You Need to Know
Ploeg and Brown P.C.
When you have outstanding tax debts, the Internal Revenue Service (IRS) has the authority to issue a tax lien against you. If you’ve received correspondence indicating that the IRS is considering or has filed a tax lien, it’s crucial to understand the implications and take appropriate action. A tax lien is a legal claim by the government on your property, including real estate, personal belongings, and financial assets, to secure the payment of unpaid taxes.
If you’ve been notified about a potential tax lien, it means the IRS is giving you an opportunity to resolve the situation before taking further action. This is often referred to as a “Notice and Demand for Payment” or a “Notice of Intent to File a Notice of Federal Tax Lien.” Ignoring this notice could result in the IRS filing a public document called a “Notice of Federal Tax Lien,” which alerts creditors and other parties that the government has a legal right to your property.
Receiving a Notice of Federal Tax Lien is a serious matter that requires immediate attention. This public record can significantly impact your credit score and ability to obtain loans or conduct certain financial transactions. It’s crucial to take proactive steps to address the underlying tax debt and resolve the lien.
What is a Tax Lien or Notice of Federal Tax Lien?
A tax lien is a legal claim by the government on your property, including real estate, personal property, and financial assets. It is a way for the Internal Revenue Service (IRS) or state tax authorities to secure the payment of outstanding tax debts. A Notice of Federal Tax Lien is a public document that alerts creditors that the government has a legal right to your property.
Assets Affected by Federal Tax Liens
Federal tax liens can attach to various types of assets, including:
– Real estate (houses, land, etc.)
– Personal property (vehicles, jewelry, artwork, etc.)
– Financial assets (bank accounts, investments, retirement accounts, etc.)
– Business assets (equipment, inventory, accounts receivable, etc.)
Can You Sell Your House With an IRS Tax Lien?
While it is possible to sell your house with an IRS tax lien, the process can be more complicated. The lien must be paid in full or subordinated (more on this later) before the sale can be completed. Failure to address the lien could result in the IRS claiming the proceeds from the sale.
How Long Do IRS Tax Liens Last?
IRS tax liens generally last for 10 years from the date of assessment. However, there are circumstances that can extend or restart the 10-year period, such as:
– Refiling the lien
– Entering into an installment agreement
– Filing for bankruptcy
What is a State Tax Lien or State Warrant?
Similar to federal tax liens, state tax liens (also known as state warrants) are legal claims on your property for unpaid state taxes. The rules and procedures for state tax liens may vary from state to state, so it’s essential to research the specific laws in your area.
How to Remove an IRS Tax Lien
There are several ways to remove an IRS tax lien, including:
1. Pay the tax debt in full
2. Set up an installment agreement or offer in compromise
3. Request a lien withdrawal or subordination
4. Wait for the lien to expire (after 10 years)
Are IRS Tax Liens Public Record?
Yes, IRS tax liens are public records. They are filed with the county recorder’s office or the Secretary of State’s office, depending on the state. This public record can impact your credit score and ability to obtain loans or conduct certain financial transactions.
What is the Difference Between a Tax Lien & a Tax Levy?
A tax lien is a legal claim on your property, while a tax levy is the actual seizure of your property to satisfy the tax debt. A tax levy can involve garnishing wages, seizing bank accounts, or taking physical possession of assets like vehicles or real estate.
Tax Lien Filing Process
The IRS follows a specific process when filing a tax lien:
1. Assessment of the tax debt
2. Issuing a Notice and Demand for Payment
3. Filing the Notice of Federal Tax Lien
Effect of an IRS Tax Lien
An IRS tax lien can have significant consequences, including:
– Impacting your credit score
– Making it difficult to obtain loans or credit
– Preventing the sale or transfer of property
– Allowing the IRS to seize your assets (levy)
Tax Lien Subordination
Tax lien subordination is a process where the IRS allows other creditors to take priority over the tax lien. This can be helpful when trying to sell or refinance property, as it allows the new lender to take a higher priority position than the IRS lien.
Tax Lien Withdrawal
In certain circumstances, the IRS may withdraw a tax lien. This essentially removes the public record of the lien, although the underlying tax debt remains. Reasons for withdrawal include:
– Tax debt being paid in full
– Becoming legally uncollectible
– Entry into an installment agreement or offer in compromise
Do Tax Liens Affect Your Credit Score?
Yes, tax liens can significantly impact your credit score. They can remain on your credit report for up to 10 years from the date of filing, even if the lien has been released or withdrawn.
How to Find Out if You Have A Tax Lien
You can check if you have a tax lien by:
– Requesting a transcript from the IRS
– Checking public records at the county recorder’s office or Secretary of State’s office
– Obtaining a copy of your credit report
What If There Is a Tax Lien Against a Deceased Person’s Assets?
If a deceased person had outstanding tax debts, the IRS can file a tax lien against their estate. The lien must be addressed by the executor or administrator of the estate before distributing assets to beneficiaries.
How Do I Contact the IRS About a Tax Lien?
You can contact the IRS about a tax lien by:
– Calling the IRS Centralized Lien Operation
– Visiting your local IRS office
– Writing to the IRS office that filed the lien
Appealing a Tax Lien
If you disagree with the IRS’s decision to file a tax lien, you can appeal the lien through the Collection Appeals Program. This process allows you to present your case to an impartial officer within the IRS.
Navigating tax liens can be complex, but with the right information and proactive steps, you can resolve these issues and protect your financial well-being. Remember, seeking professional assistance from a tax attorney or enrolled agent can be invaluable in understanding your rights and options.