Federal Tax Lien Explained

A federal tax lien is issued when the US Government files a claim against your assets as a result of a failure to pay a tax debt – or if you neglect to pay a tax debt you owe.  This can happen if you fail to file your taxes when you neglect or fail to pay a tax debt. You can also be issued a state tax lien for unpaid state tax debt.  A federal tax lien establishes the IRS’s interest in collecting your debt by seizing your property, which could include real estate, owned property (car, house, tv, etc) and financial assets (money in bank accounts, paycheck, etc).

The IRS files a public document, a Notice of Federal Tax Lien.  Because this is a public document, it means that anyone in the public can discover your tax debt.  This includes creditors, tax resolution companies, employers, etc…  Having a tax lien is a bad thing and should be avoided at all costs!

Getting Rid of a Lien

According to the IRS, “paying your tax debt in full is the best way to get rid of a federal tax lien.”  There are other ways to get rid of a lien too, which could include properly filing or re-filing un-filed taxes, making a settlement, getting on a payment plan, or applying for a penalty abatement.  To the average taxpayer, paying off a massive tax debt is typically very difficult because of the sheer size of the tax debt amount owed.  However, the alternative solutions may be difficult to complete or get approved for without some help from an experts.

How a Lien Affects You

According to the IRS, there are four primary ways in which a federal tax lien can/will affect you:

  1. Assets — A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.
  2. Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.
  3. Business — The lien attaches to all business property and to all rights to business property, including accounts receivable.
  4. Bankruptcy — If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.

However, there are other impacts that this might have on you too:

  1. Stress — A lien is very stressful to have because it’s a reminder that there’s a large tax debt in your name.
  2. Fear — The IRS doesn’t tell you how it intends to seize your assets in a tax lien so there’s some uncertainty about what’s going to happen next
  3. Confusion — You may not know why you received a tax lien or how to resolve it. This can be very confusing

What to do if you have a Federal Tax Lien

To understand what a federal tax lien really means in the simplest of explanations: The IRS intends to collect your tax debt by any legal means necessary.  This will happen if you do nothing!  If you are like most people and cannot pay your tax debt in full within the time period the government sets for you, DO NOT ignore the letters from the IRS! If you can’t pay the full amount you owe, there are alternative solutions.  The most common alternative solution is a payment plan.  However, a tax expert may be able to help you find an exceptional solution.  An ideal tax expert would be an Enrolled Agent (a federally registered expert who solely focuses on tax debt resolution for people with tax liens).

Comparing a Tax Lien to a Tax Levy (AKA Asset Seizure, Wage Garnishment, etc)

tax levy actually seizes your assets/property/money/etc to pay off your outstanding tax debt. The IRS has the legal authority to levy – which means to seize and then sell any type of asset you have, including your house, car, personal belongings, business, investments, and more!  A tax levy is the last recourse the IRS has to collect a debt so you should avoid it at all costs!

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