What Is a Federal Tax Lien?

Filing a tax lien is one mechanism the IRS uses to get the attention of taxpayers who have past due tax liabilities.

A federal tax lien is the government’s legal claim against a taxpayer’s property when that taxpayer neglects or deliberately fails to pay a tax debt.  The lien protects the government’s interest in all of the taxpayer’s property, including real estate, personal property, and financial assets.

The IRS usually does not file a tax lien until several balance due notices have been sent to a taxpayer.  The last notice sent before the IRS files a lien is a “Final Notice of Intent to Levy and Notice of Your right to a Hearing.”  Once this notice has been received, the taxpayer has 30 days to respond before the IRS files a Notice of Federal Tax Lien (NFTL).

An NFTL attaches to all property and rights to property, including real property, personal property, tangible and intangible property.  The lien also attaches to property acquired after the lien has been filed.

Typically, the IRS will not file a lien if a taxpayer’s aggregate balance is less than $10,000 or if a taxpayer enters into a streamlined installment agreement for $50,000 or less.  There are, however, exceptions and stipulation to these rules including the $25,000 rule.

Effects of a Federal Tax Lien

A tax lien is usually a matter of public record.  It usually affects a person’s credit rating as well as reduces one’s credit score by as much as 100 points.  If left unpaid, it can remain on your credit report for a long time.  Credit-reporting agencies such as Equifax, Transunion, and Experian can keep the tax lien on your record for as long as seven years after the date the lien was satisfied.  This can hinder your ability to acquire credit or cause your cost of borrowing to be exceptionally high.

A lien can also affect one’s ability to sell or transfer property such as cars, boats, and real estate.  Also, the ability to refinance property is affected.  A lien subordination or discharge will have to be requested in order to sell, transfer, or refinance any assets.

Once a lien has been filed, it typically stays in effect for ten years from the date the IRS assessed the tax.  The lien, however, can be extended in certain situations.  You will need to ask your tax advisor under what circumstances a lien could be extended beyond the normal ten years.  Bankruptcy is one situation that can cause an extension of the normal ten years.

Types of Lien Relief                 

Once the IRS has filed a tax lien, there are five types of lien relief available.  It is important to know that an available lien relief is not a one-size-fits-all solution.  Individual circumstances and facts must be taken into consideration to determine what relief method would work for your particular case, or if a relief method would work for you at all.  Because this area is very specific, I will not go into detail about the different types of available relief.  If you have questions in this area, you can contact a tax professional for further explanation and/or assistance.

Have a great week!!!

Desarie Anderson, CPA, EA

Anderson Accounting, LLC

(404) 300-3175

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