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Facts about IRS tax liens

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.

What is an IRS tax lien?

An IRS tax lien is what it is called when the government makes a claim on your property due to unpaid taxes. When you owe the IRS and fail to pay, they use this lien to secure their interest in your assets. This can include your house, car, and bank accounts. Essentially, it alerts other creditors that the IRS has priority over your property for debt repayment.

Common reasons for IRS liens

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.

When can the IRS file a tax lien?

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.

The IRS tax lien process

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.

How a tax lien can affect you

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.

Removing or avoiding a tax lien

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.

What is the difference between an IRS tax lien and a property tax lien?

An IRS tax lien and a property tax lien are both claims on your property, but they come from different sources. An IRS tax lien is for unpaid federal taxes. The IRS files it when you don’t pay your income taxes. On the other hand, a property tax lien is for unpaid local property taxes. Your city or county files it when you don’t pay taxes on your home or land. Both liens can make it hard to sell or refinance your property.

Can an IRS tax lien be removed through bankruptcy?

Bankruptcy might help with some debts, but it doesn’t automatically remove an IRS tax lien. In some cases, bankruptcy can discharge the tax debt, meaning you don’t owe it anymore. However, the lien might stay on your property until you pay it off or negotiate with the IRS. It’s important to talk to a tax lawyer about your situation. They can explain how bankruptcy laws apply to your IRS tax lien.

What happens if you ignore an IRS tax lien for a long period of time?

If you ignore an IRS tax lien, it can lead to serious consequences. The IRS might take money from your bank accounts. They can also garnish your wages. This means they take a part of your paycheck before you even see it. It can make it hard to pay your bills.
 
The negative impact on your credit score could make it hard to get loans or credit cards. It can even make renting a home more difficult. Over time, the debt can grow. The IRS adds interest and penalties to what you owe. This makes the debt bigger and harder to pay off.
 
Finally, the IRS can take your property. They might sell it to cover the debt. Losing your home or car can be very stressful. So, it’s important to deal with an IRS tax lien as soon as possible. Talk to a tax professional or the IRS. They can help you find a solution. It’s better to address it now than face bigger problems later.

Need help with an IRS tax lien?

If you have any questions about tax liens, contact an experienced tax attorney, who can evaluate your case and discuss your options.