What is a Federal Tax Lien?

Apr 9, 2020 | IRS Tax Assistance, Tax Resolution


Unpaid federal taxes are one of the worst types of debt to owe. The federal government has vast powers of tax collection that most creditors lack. Also, federal laws grant the IRS a very long statue of limitations on debt collection. Though the IRS may not take drastic collection measures right away, anyone who owes significant back taxes can expect the IRS to, at some point, engage in aggressive recovery efforts. Often, these aggressive measures come in the form of federal tax liens.

A federal tax lien reserves the right of the U.S. government to seize personal or business assets and sell them to satisfy a tax bill.

Virtually any type of property can be seized, but the IRS’s favorite targets include small businesses, bank accounts, residences, vehicles and investment portfolios.

Even property acquired during the life of the tax lien is subject to seizure. Paying off the entire back balance provides the surest way to prevent property seizure. When payment is not possible, discharging property, filing for withdrawal or entering into subordination agreements can provide temporary relief.

How a Federal Tax Lien Works

The federal tax lien process begins with an IRS assessment of tax debt. Once it has determined the bill, the IRS sends a notice and demand for payment. Upon receiving a notice and demand for payment, it is wise to seek advice from a tax professional. Often, the IRS asks for far more than it is willing to accept. This is especially true when the IRS bases its assessment of tax debt on a substitute for return.

The IRS uses a substitute for return when a taxpayer fails to submit a tax return. Unfortunately for the delinquent taxpayer, the IRS applies the bare minimum deductions and the maximum penalties. Filing their own return with all deductions and reduced penalties may result in a lower federal tax lien.

Filing bankruptcy usually does not help the taxpayer. The bankruptcy code considers federal taxes a priority debt, so they are ineligible for discharge in bankruptcy.

Perfection of a Federal Tax Lien

The IRS often “perfects” tax liens by notifying state revenue authorities and other creditors that the federal government has the right to collect its debt in full before they can seize any assets from the debtor. Tax liens also get reported to credit bureaus. As a result, the taxpayer’s credit score is severely downgraded. Because the federal government has perfected a tax lien, moneylenders will worry that the government will seize any means the debtor has to repay loans. For this reason, those with federal tax liens may find it impossible to obtain certain types of financing.

Federal Tax Levies

A tax levy is the process of actually seizing the property. The law gives the IRS the right to issue tax liens, provided it follows certain procedures. Before the IRS can issue a tax levy, it must assess the tax and send a bill to the taxpayer. In addition, it must send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. This notice is sent at least 30 days prior to the levy. It can be delivered by mail or in person at the taxpayer’s home or business.

Tax levies apply to virtually any type of property.

Tax Liens Indicate the IRS is Serious About Collecting Quickly

Since federal tax liens inform other creditors that the IRS is first in line to seize property, any taxpayer subject to one should assume the IRS will attempt to seize assets very soon. Because the power of the IRS to collect is so broad, federal taxes are one of the worst types of debt to owe. Anyone subject to the collection of back taxes should try to avoid a tax lien by resolving the debt before receiving notifications from the IRS.

Taxpayers who are in financial distress should always file their taxes, even if they can’t afford to pay. This protects them from failure-to-file penalties. The taxpayer can then apply for a payment plan. If a payment plan is entered into, the taxpayer avoids the possibility of a tax lien or levy. By taking proactive steps, taxpayers can avoid IRS collection activity.

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.

If you are experiencing serious tax debt, you should take immediate action to resolve your tax problem. The Law Offices of Peter C. Rageas can help. The attorneys at our law firm, are well versed in the local, state, and federal tax code, able to offer sound advice and solutions. Our tax law firm Detroit, Michigan has been helping clients throughout the Tri County area and beyond for over 20 years. Protect yourself and know your rights! Contact us today for a case evaluation.

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Our tax resolution and IRS tax dispute law firm in Michigan, helps clients resolve tax problems. We have helped many individuals successfully negotiate resolution to their IRS and other tax problems. Our services include: tax dispute, tax resolution, IRS taxes, IRS tax problem, offer in compromise, audit help, audit representation, criminal tax defense, injured spouse, innocent spouse, IRS agreements, tax installments, tax negotiations, IRS audit defense, IRS liens, tax returns, tax negotiation, payment plans, tax abatement, penalty abatements, IRS representation, wage garnishment, tax audits, tax petitions, tax lien, tax levy, payroll tax problems, trust fund, unpaid taxes

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