The thought of a tax lien frightens most people. You’ll want to understand the basics should you ever face a tax lien from the IRS:
What exactly is a lien?
It is a legal claim against your property to pay a debt. A lien does not change the ownership of the property; it identifies that the property has a legal claim against it.
When and how does a tax lien arise?
A federal tax lien arises when any “person” (individuals, partnerships, corporations, trusts, estates and associations) fails to pay a tax debt. The IRS will first assess your liability and send you a Notice and Demand for Payment – a bill explaining how much you owe. If you refuse or neglect to pay the fully assessed debt on time, the IRS will file a Notice of Federal Tax Lien, a public document telling creditors of the government’s legal right to your property. The lien is effective from the date IRS assesses the tax.
What is the difference between a lien and a levy?
A lien secures the government’s interest in your property to pay your tax debt. A levy actually takes away your property to pay the tax debt.
How long does a tax lien last?
The IRS generally has ten years after the assessment to collect the tax liability. However, the IRS can extend or suspend the ten-year collection period under some circumstances.
How can a lien affect you?
Your assets – A federal tax lien can attach to your house, your bank accounts, your investments, your vehicles, all your current and future assets for the duration of the lien. This can certainly affect your ability to carry on a normal life financially.
Your credit – Your credit rating and ability to get credit will be adversely affected.
Bankruptcy – Your tax debt may continue even if you file for bankruptcy.
How can you get rid of a lien on your property?
Of course, the IRS thinks the best way to get rid of a federal tax lien is to just pay everything they say you owe. The IRS will release all liens within 30 days after you pay your tax debt – in full. Not possible for you? There are some ways, but we recommend they are handled with a tax professional:
- Apply for a Certificate of Discharge from Federal Tax Lien. This will allow selected property to be sold free of the lien.
- Apply for a Certificate of Subordination of Federal Tax Lien. This will not remove the federal tax lien, but will allow your other creditors a priority claim on the selected property. This could make it easier to get a loan or mortgage.
- Apply for a Withdrawal of Federal Tax Lien. This will remove the public notice and give assurance to your other creditors that the IRS is not making a claim on selected property.
You have options to settle with the IRS, such as an Installment Agreement or an Offer in Compromise. Gary Kaplan is an experienced CPA in IRS negotiations; we can help you get on the right track.
