For U.S. taxpayers who have fallen behind on tax payments due to neglect or refusal to pay, the IRS has the option to place a lien on your property.
While not as severe as a levy—where the IRS actually seizes your assets—a lien is still not something to take lightly.
This post will help you understand what a lien is, what to do if you receive a Notice of Federal Tax Lien (NFTL), and your options for dealing with the IRS.
Understanding a Federal Tax Lien
After the IRS issues a notice and demand for payment, it can issue a NFTL to taxpayers who have neglected or refused to pay their tax bill. The IRS is not required to issue a NTFL just to place a lien on a taxpayer’s assets, but the NTFL is used by the IRS to get priority in debt collection over other creditors. Think of the NTFL as a tool used by the IRS to secure the government’s position or priority amongst other creditors competing for the same property as security for a debt. The NTFL is a public notification filed with state and local county recording offices.
Be aware that tax liens can happen at the state and local level as well; it’s not just the IRS that has the power to issue a lien. Local taxing authorities can do this, too.
How to Get Rid of a Federal Tax Lien
Getting a federal tax lien removed is straightforward and uncomplicated: pay off the tax debt, and the lien is removed.
Unfortunately, this is a lot easier said than done for many taxpayers. Generally, unless you can prove that the lien is issued in error, it’s not easy to get the lien removed without satisfying the debt obligation.
There are, however, options for challenging the lien or for negotiating a reduced tax bill. Because of the complicated nature of these actions consider exploring them with the help of a licensed tax professional.
What Does a Tax Lien Mean?
It’s important to clarify the distinction between a lien and a levy. A levy is when funds are taken from your accounts, or your wages are garnished, or your property is seized in some other way.
A lien is simply a claim on the property for the amount of tax owed—there are no immediate ramifications with a lien. Liens become problematic when a taxpayer tries to sell or transfer a property with a lien attached to it. Federal tax liens don’t show up on credit reports (though some state-issued liens do), but a lien could cause trouble for taxpayers trying to buy or refinance a home, or get approved for a personal or business loan.
Keep in mind that once a lien is issued, it’s attached to the property until the IRS removes it, and the IRS will only remove it when the debt is paid. This means that if you owe, for example, $65,000, and a lien is placed on your property, the lien is still going to be there if you pay down $15,000 of the debt, and it most likely won’t reflect the new balance, since it is usually tied to the original date of notice.
What to Do if You Receive a Federal Tax Lien
The best advice for any situation with the IRS is 1) don’t panic, and 2) don’t ignore it.
The IRS, generally, only issues a lien when a tax debt obligation exceeds $10,000. If you have found yourself in a situation where you owe this much to the IRS, it’s a good indicator that there are some bigger-picture tax issues to deal with. Maybe you’ve fallen behind on payments over the years, maybe you had an off year and got hit with a tax bill you cannot afford—whatever the case may be, it’s worth getting in touch with a tax professional to go over your whole situation and the options available to you.
A qualified tax professional will be able to get a big-picture understanding of your situation and find ways for you to reach a resolution with the IRS. If you are looking for help regarding a federal tax lien, be wary of any firms making claims that they can “remove” your lien, because this is a rare outcome. Generally, the only way to get a lien removed is by satisfying your tax obligation. Outside of that, removing a lien would require a rock-solid case that the IRS has issued the lien in error.
There are, however, options for dealing with a lien, including establishing a payment plan, making an offer in compromise to reduce the overall tax debt, or working with the IRS to get the lien updated or removed after a satisfactory amount of the debt has been paid.
Who to Contact if You Receive Notice of a Federal Tax Lien
With a staff of enrolled agents licensed to practice in all 50 states, Tax Relief USA should be your first call if you receive a NFTL.
Because Tax Relief USA works day in and out with the IRS, we’ve just about seen it all when it comes to taxes. This means we have the experience and expertise at hand to work on your case and find a suitable resolution by leveraging our knowledge and close working relationship with the IRS.
Whether you can’t afford to pay and need a solution that works for you, or your lien is actually a small sign of a larger tax trouble, you can turn to Tax Relief USA for trusted, expert advice and realistic solutions to help resolve your tax issues and bring your balance down.
Learn more about how Tax Relief USA can help you resolve your issues with the IRS, including federal tax liens, back taxes, and more. Give us a call at (408) 533-1814 or answer a few questions here to get tax help now.