IRS Tax Lien

What Is a Federal Tax Lien?

A tax lien is a legal claim by the Internal Revenue Service (IRS) against your property due to unpaid federal taxes. When you have an outstanding tax liability, the IRS may issue a Notice of Federal Tax Lien indicating that the agency has a legal right to your property.

A lien informs other creditors and credit bureau agencies that the IRS takes precedence over other claims on your property. This includes your current and future assets, such as your home, vehicles, savings, and retirement accounts.

Under the Internal Revenue Code, the IRS is authorized to file this claim when federal taxes remain unpaid after notice and demand.

Difference Between a Tax Lien and Tax Levy

Tax liens and tax levies are often confused, but they represent different stages of the IRS collection process. A lien is a legal claim on your property, and does not result in the immediate seizure of assets. When a federal tax lien exists, it secures the government's interest in your assets. In contrast, a tax levy is the actual seizure of your property to satisfy unpaid taxes.

If a tax lien remains unresolved, the IRS may escalate the matter to a levy, which could result in the forced sale of your property, bank account levies, or wage garnishment.

I Received a Notice of Federal Tax Lien. What Do I Do Now?

Receiving a Notice of Federal Tax Lien can be stressful, but it generally does not mean the IRS will immediately seize your property. A tax lien is a legal claim the IRS files against your assets when tax debt remains unpaid after prior notices.

Leaving a lien unaddressed may result in he IRS to pursuing additional collection actions, such as levies or wage garnishments. Responding early can give you more options to work with.

Depending on your situation, you may be able to pay the tax debt in full, set up an IRS installment agreement, request lien withdrawal or subordination, or explore whether you may qualify for an Offer in Compromise. A tax professional can help you understand which options may apply to your circumstances.

How Does an IRS Tax Lien Affect Me?

A federal tax lien may affect multiple areas of your financial life. Because it is a public legal claim, the lien notifies creditors that the government may have a legal claim that takes priority over your assets until the tax debt is resolved.

Some of the most common impacts include:

• Reduced borrowing ability. Lenders may be less likely to approve loans or credit applications because the IRS has a superior claim to your assets.
• Difficulty selling or refinancing property. If you try to sell real estate or other assets, the lien may need to be satisfied before the transaction can proceed. Tax liens often surface during title searches, which can complicate home sales or refinancing.
• Business limitations. Business owners with a federal tax lien may face challenges securing financing, leasing equipment, or maintaining normal operations.
• Asset attachment. The lien generally attaches to property you currently own, but may also attach to assets you acquire in the future until the debt is paid.

While a lien generally does not immediately take your property, it signals that the IRS may move toward more aggressive collection actions if the tax debt remains unresolved.

Receiving a Notice of Federal Tax Lien can be stressful, but it generally does not mean the IRS will immediately seize your property. A tax lien is a legal claim the IRS files against your assets when tax debt remains unpaid after prior notices. If you receive one, it’s important to review it carefully to confirm the tax years, balance owed, and type of action taken, as you have the right to challenge incorrect assessments.

Leaving a lien unaddressed can lead to additional collection actions, such as levies or wage garnishments, so responding early may help preserve your options. These include paying the balance in full, setting up an installment agreement, requesting lien withdrawal or subordination, or exploring an Offer in Compromise with the assistance of a tax professional.

Personal Assets

A tax lien applies to the following assets:

• Real estate (homes and rental properties)

• Vehicles (any cars, boats, or motorcycles)

• Financial accounts (checking, savings, and 401(k) accounts)

• Business assets (if you are a business owner)

Once the lien is recorded, it extends to any future assets you acquire until the tax debt is resolved.

Credit and Finances

Tax liens are recorded as public records, making them visible to certain creditors and lenders. This may affect your ability to secure loans or refinancing.

Business Operations

If you are a business owner, an IRS tax lien filed for a business tax debt can be attached to all business assets and equipment. This may limit your ability to secure financing or conduct normal business operations.

Bankruptcy

Filing for bankruptcy does not remove or prevent a tax lien. Other debts can be discharged in a bankruptcy, but a lien can remain until the outstanding tax debt is resolved or fully paid to the IRS.

Self Employed Tax Liability

Self-employed individuals may face an increased risk of tax liens because they’re responsible for calculating and paying their own taxes. When quarterly estimated payments quarterly estimated payments are missed, balances may increase over time.

If a self-employed taxpayer falls behind on income taxes, payroll taxes, or self-employment taxes, the IRS may file a lien that can affect personal and business assets, including equipment, accounts receivable, and business property.

How to Remove a Tax Lien

IRS tax liens require immediate action, and paying your tax debt in full is a straightforward method to remove it from your account. Once the IRS processes your payment, the tax lien will be discharged within 30 days.

However, most taxpayers with liens owe amounts so significant that they cannot pay in full within a short time frame. Other options for resolving or removing the lien include:

• Discharge of Property – removes the IRS lien from a specific property. This allows you to sell or refinance it, but the lien will remain on your other assets until the entire tax debt is resolved.

• Subordination – does not remove the lien, but allows other creditors priority over the IRS. This is beneficial if you are trying to secure a loan or mortgage.

• Withdrawal – removes the tax lien so the IRS is not competing with other creditors for your property. However, this does not eliminate your tax liability.

• Direct Debit Installment Agreement — In some cases, setting up a Direct Debit Installment Agreement may help you qualify for lien withdrawal once certain IRS requirements are met.

• Invoking your right to dispute the tax lien or appeal the process.

• Exploring options in the Fresh Start Program and entering into a resolution with the IRS, such as an Installment Agreement or Offer in Compromise.

Even though the IRS cannot seize assets with a tax lien, eventually, they may issue a tax levy if you do not take action to resolve your tax debt. It is important to explore your options as soon as possible or consult with a dedicated tax professional.

Your Next Steps for Tax Lien Removal and Tax Relief

Discover your next steps with the team at TaxRise. Our experts will review your financial situation and strategize the best possible solution for your case. Get in touch with us and schedule a free consultation today.