In most cases, taxpayers do not intend to fall behind on their federal income taxes. Any number of factors, including large medical bills or loss of a job, can cause serious financial trouble and can prevent someone from paying his taxes. Unfortunately, when that occurs, the Internal Revenue Service can, in some cases, file a tax lien against a taxpayer's home.
Whenever a taxpayer is behind on his taxes, he is subject to a lien by the IRS. A tax lien on a home is not effective, however, until the taxpayer receives a notice of the lien. This means that the IRS has filed a legal claim against the taxpayer's residence as collateral for the unpaid tax debt.
Generally speaking, the IRS pursues tax liens in cases involving relatively large amounts of tax debt. In most cases, the IRS will not file a tax lien on a residence unless an unpaid tax bill reaches $5,000 or more. In other words, the IRS generally uses liens when the size of the debt is such that it believes it is unlikely to recover the full amount within the 10 year statute of limitations for payment of tax debt.
In order to file a tax lien, the IRS must follow some specific rules. For example, the IRS is required to assess tax liability and to send notice and demand for payment to the taxpayer. If the taxpayer does not pay the debt within 10 days of receiving the demand, only then can the IRS file the lien.
If the IRS does successfully file a tax lien on a property, it does not mean that it can require a taxpayer to sell his home to cover the debt. That said, a tax lien can result in some difficulty. For example, if a taxpayer with a lien on his home attempted to sell his residence, the IRS could take a portion of the proceeds from the sale to cover the debt. The presence of a lien could also make it difficult to qualify for a loan to refinance. A tax lien will also negatively impact a person's credit rating and will remain on a credit report for seven years after it is paid.
The best way to avoid problems from a tax lien is to pay the debt in full. The IRS even has a fresh start program, which allows those who have paid their debt to remove the lien information from their credit reports.
If you have any questions about tax liens, contact an experienced tax attorney, who can evaluate your case and discuss your options.