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Dealing with IRS Tax Liens
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Dealing with IRS Tax Liens
Having the IRS place a tax lien on your property can be stressful and confusing. A federal tax lien gives the IRS a legal claim to your assets if you fail to pay back taxes. Here is a guide to understanding tax liens and strategies for navigating this tricky situation.
What is an IRS Tax Lien?
A federal tax lien is a legal claim against your current and future property and rights to property, including:
- Real estate
- Vehicles
- Financial accounts
- Business assets
- Personal possessions
This “secret” lien arises automatically after[1]:
- The IRS assesses tax you owe
- They send a notice and demand for payment
- You fail to fully pay the debt
The IRS files a public Notice of Federal Tax Lien to alert creditors. This hurts your credit score and can make getting a loan more difficult.
How Long Does a Tax Lien Last?
The IRS usually has 10 years to collect the unpaid taxes through enforced collection actions like levies or seizures[2]. The timeframe begins when the tax is assessed, not when the lien is filed.
The tax lien expires 10 years from the assessment date unless:
- The statutory period for collection is extended
- The lien is renewed by refiling
- The tax debt is satisfied
The lien can last longer than 10 years in certain cases.
Removing an IRS Tax Lien
To get rid of a federal tax lien, you must:
- Fully pay the tax debt
- Enter an installment agreement
- Settle for less than owed through an Offer in Compromise
- Prove financial hardship currently not collectible status
You can also request a lien withdrawal after paying the tax debt down to a certain amount[3].
Releasing a Lien on Specific Property
If you need to sell an asset with a tax lien, you can apply for a:
- Discharge – removes lien from property
- Subordination – makes IRS lien lower priority
This releases the property from the lien. The IRS will usually work with you if the sale proceeds pay toward the tax debt.
Avoiding Future Tax Liens
Once a lien arises, it can be difficult to remove. Avoid liens in the first place by:
- Paying taxes on time
- Responding promptly to IRS notices
- Entering a payment plan if you owe
- Addressing collection issues early
Consult a tax professional at the first sign of tax trouble to head off a lien.
While scary, tax liens don’t necessarily mean you will lose property. Work constructively with the IRS to resolve the tax debt. Tax experts can advise the best resolution strategies for your situation.
With persistence and good faith efforts to address the tax debt, it is often possible to navigate through a federal tax lien without devastating consequences. Don’t ignore the problem – take proactive steps to protect yourself.