An IRS tax lien or federal tax lien can negatively effect both your credit and your ability to buy, sell, or refinance property.  If you owe back taxes, the IRS can issue an IRS tax lien against any real property that you own.  If you owe back taxes and need IRS help with an IRS lien, contact Austin & Larson Tax Resolution.  

What is an IRS Tax Lien?

An IRS tax lien is a legal claim by the federal government on your property when you owe an unpaid tax balance.  A federal tax lien attaches to all your property, including real property (houses or land), personal property, and financial assets.

Before the IRS will issue a federal tax lien against a taxpayer, they will first assess the tax balance and then send out a Notice and Demand for Payment.  If the balance is not paid after the demand notice has been sent, the IRS may issue an IRS lien.

The IRS files a Notice of Federal Tax Lien to alert creditors of their interest in your property.  This is generally filed in the county where the taxpayer lives.  The IRS may also file a Notice of Federal Tax Lien in additional counties where the taxpayer has assets.

Is an IRS Tax Lien the Same as an IRS Tax Levy?

Many taxpayers confuse a federal tax lien with a federal tax levy.  The purpose of a federal tax lien is not to seize or levy your money or assets.  Instead, the purpose of a lien is to protect the government’s interest in your property when you have an outstanding IRS tax debt.  Often, the IRS will issue a federal tax lien after they have established resolution on your outstanding tax debt.  Below is an example of one way in which a federal tax lien can be issued and how it effects a taxpayer.

Example:  Johnny Tax filed his 2014 and 2015 returns, owing $27,000.00 that he was unable to pay.  After filing his returns, the IRS assessed the balance against him and he received a notice from the IRS demanding payments of the balance.  Johnny Tax hired a resolution company to request a currently non-collectible status on his balances.  This request was granted.  The IRS then sent out a Notice of Federal Tax Lien to the county in which Johnny lives. 

In the above example, Johnny Tax is in compliance with the IRS.  Although he is not actively paying his tax debt now, the IRS has been contacted and they have agreed that he does not currently have an ability to pay.  Although the lien does not seek to seize anything from Johnny Tax, it does protect the government’s interest.

Six months after the IRS has placed Johnny Tax’s account into the non-collectible status, Johnny decides to sell his home.  After the current mortgage is paid, Johnny will make $50,000.00 from the sale.  Without the lien in place, Johnny would receive all proceeds from the sale.  However, with the lien in place, there is no longer clear title on the property.  Through the lien, the IRS has protected its interest in Johnny’s assets.  In order for Johnny to get clear title to sell his property, the amount that he owes the IRS will need to be paid through the proceeds of the sale. Johnny will then receive any remaining funds.   

A lien attaches to both property owned when it is issued and any future property acquired by the taxpayer during the duration of the lien.  A lien is reported to credit agencies and can very negatively affect your credit.  It can also substantially hinder your ability to purchase new property, refinance, or get a loan.

What To Do Once You Have an IRS Tax Lien

There are several different ways to deal with a lien.  The best way to handle a federal tax lien is to prevent one from being issued in the first place.  If you owe a federal tax debt, payment of the debt in full will prevent a lien from being issued or it will release a lien that has been issued.  There are also various IRS payment plans that can be established that will not result in liens being issued.

If a lien has already been issued, all is not lost.  The IRS may release the tax lien through a direct-debit installment agreement if certain conditions are met.  They may also subordinate the lien, allowing you to refinance or purchase property.  They also may release a federal tax lien on a specific piece of property to facilitate its sale.

One other thing to note about a federal tax lien is that the amount of the lien is not reduced as the balance is paid off.  Many taxpayers will contact us stating that they still have a $50,000 lien on their credit report, but they may now only owe $10,000 in remaining tax debt.  This is because the lien amount is not adjusted down.  It is also not released until the tax debt on all periods of the tax lien are satisfied.

The purpose of a federal tax lien is to protect the interest of the government.  It can have many negative effects on your credit and your ability to buy or sell property.  The IRS can issue a lien at any time after a tax balance has been assessed and not paid.  If you have questions about federal tax liens or if you need help getting one released, contact our office for assistance.

A federal tax lien can cause you serious credit and financial issues for years.  If you have an IRS tax lien or if you owe back taxes and need IRS help, contact our office to discuss your resolution options.  We will help you figure out a way to resolve your federal tax debt and can assist you with your IRS lien.