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.

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. On the other hand, a tax levy is the actual seizure of your property to satisfy your tax debt. 

If you fail to resolve or respond to the tax lien, the IRS can escalate the matter to a levy, which could result in the forced sale of your property, bank account freezing, or wage garnishment.

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.

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.
• 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.

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 at 833-419-RISE (7473) or schedule a free consultation today.