IRS Lien
Managing monthly bills can be challenging, and the last thing you need is a Notice of Federal Tax Lien from the IRS. Federal tax liens are alarmingly common and affect many American households each year. They are one of the most intimidating tools the IRS uses, and they are often poorly explained. Below, you’ll find an overview of what an IRS lien is, why it occurs, and how to resolve it.
What Is a Federal Tax Lien?
A federal tax lien is a legal claim by the IRS on your property when you owe back taxes. It extends to everything you own, including your house, car, furniture, TV, financial accounts, and other personal property. Essentially, it signals that the IRS has a legal right to your property.
It’s important to note that a lien is different from an IRS levy, which you can learn more about elsewhere.
Why Did This Happen?
The IRS files a federal tax lien when you owe back taxes. After determining the amount you owe, the IRS sends a Notice and Demand for Payment, requesting full payment within a specified time. If you don’t make the payment, a federal tax lien may be filed.
What Happens After a Federal Tax Lien Is Filed?
Once a lien is filed, the IRS will notify you in writing. If you believe the lien is a mistake because you don’t owe the taxes, you can file an appeal.
If the lien is valid, the IRS will file a document with the Public Recorder’s office, informing your creditors about the lien and the IRS’s legal claim on your property. This lien will also appear on your credit report, damaging your credit score.
The IRS has a limited time to enforce the lien before it expires, typically ten years, although this period can be extended.
What Can You Do?
It’s best to avoid the filing of a federal tax lien altogether by addressing your tax debt promptly. However, if a lien has already been filed, there are ways to minimize its impact:
- File an Appeal: If you believe the lien is incorrect, you can contest it.
- Negotiate an Installment Agreement: Arrange a payment plan with the IRS.
- Offer in Compromise: Settle your tax debt for less than the full amount owed.
- Request Additional Time: Ask for more time to pay the debt in full.
- Withdrawal of the Lien: In some cases, you can have the lien withdrawn.
By exploring these options, you can work to resolve your federal tax lien and mitigate its effects on your life.