If you owe the federal government money for not paying income or property taxes, for underpaying your income or property taxes, or for failure to pay other taxes owed, the federal government / IRS can impose a tax lien to secure the payment of those taxes owed.
A federal tax lien is the government’s legal claim against your property which protects the government’s interest in your property, including real estate, personal property and financial assets.2 In order for the government to impose a tax lien they first have to send you a bill explaining how much you owe. This is called a Notice and Demand for Payment. If you don’t fully pay the debt in the time required, the IRS then files a public document, which is called a Notice of Federal Tax Lien. This document alerts creditors, like mortgage companies and automotive finance companies, that the government has a legal right to your property. After the lien is filed, if you still don’t take steps to pay the IRS for your tax debt, the government will actually seize the property and sell it. A levy actually takes the property to pay the tax debt.
Having a federal tax lien can make it difficult or impossible to secure credit. It can also negatively affect your ability to secure employment and rental housing, as many employers and rental companies check credit reports to obtain information on character and credit worthiness. While the three major credit bureaus – Equifax, Experian and TransUnion – began excluding or removing many liens from consumers’ credit reports starting in July of 2017, they are still including them as part of a credit report if the lien includes the consumer’s name, address, and either a Social Security number or birth date. A paid lien can remain on your credit report for up to seven years after it’s been released and you have notified the credit bureau, and an unpaid lien stays on your credit report for up to 10 years after it was originally filed.3
If you own a home and the IRS has imposed a tax lien on it you can sell it, but the proceeds of the sale will go to the IRS. If the home is sold for less than the amount that you owe the IRS, you can request that the IRS discharge the lien to allow for the completion of the sale.4 If you are trying to refinance or restructure your mortgage, you can ask the IRS to make the federal tax lien secondary to the lending institution’s lien. This is a process called subordination.
The IRS can also impose tax liens on automobiles, trucks, boats, goods, bank accounts, wages and benefits, interests in trusts, and partnership interests, certificates of stock, bonds, promissory notes, licenses, goodwill, debts owed to the taxpayer, patents, copyrights, trademarks and franchises.5 In fact, no property or rights to property belonging to a taxpayer is exempt form attachment of a federal tax lien with just one exception which pertains to lands held in trust by the U.S. for a non-competent native American.6
The best way to avoid a federal tax lien is obvious. Pay your taxes. If you aren’t able to pay your taxes in full, do not simply ignore tax notices mailed to you. Instead, contact the taxing authority (the IRS or in the case of property taxes, your municipal authority) and discuss payment options that allow you to settle your debt over time. If you are able to negotiate payments, make the payments as agreed. There are also a number of other ways to remove a lien. This includes a Discharge of Property, which removes the lien from specific property. There is also a Withdrawal which removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for your property, but still holds you liable for the amount of money owed. You need to meet eligibility requirements for both the Discharge of Property and the Withdrawal options.7
Do not delay resolving your tax lien problem! Tax Resolution Law Firm in Detroit MI is a full-service tax dispute law firm offering tax help to Michigan residents and beyond. The attorneys at our law firm, are well versed in the local, state, and federal tax code, and can help you today! If you have an IRS tax concern do not hesitate to call us today. Let’s get started rebuilding your financial future.
1,2,7 Understanding a Federal Tax Lien, www.irs.gov
3 How Tax Liens Affect Your Credit Score, Brady Porche, March 16, 2017
4 What If There is a Federal Tax Lien on My Home?, www.irs.gov, Updated 1/31/2019
5,6 Legal Reference Guide for Revenue Officers, Section 2. Federal Tax Liens