It can be difficult enough paying the bills each month; the last thing you want to receive is a Notice of Federal Tax Lien issued by the IRS. Federal tax liens are incredibly common, affecting countless American households every year. They are one of the scariest tools the IRS has, and they are almost never explained properly. Below you can find out what an IRS lien is, why it happens and what can be done to get it out of your life.
WHAT IS A FEDERAL TAX LIEN?
To begin, it’s important to understand what a federal tax lien is and what it is not.
Simply put, when a lien is filed, the IRS is making legal claim of your property. The federal tax lien extends to everything you own, including your house, car, furniture, TV, financial accounts, and any other personal property. Think of it as a giant sign hanging from your belongings that says, “The IRS has a legal right to this property.”
This is a different procedure than an IRS levy. Learn more about IRS tax levies.
WHY DID THIS HAPPEN?
The IRS files for a federal tax lien when you owe back taxes. After determining how much you owe, the IRS will send a bill explaining the balance due. This is called a Notice and Demand for Payment. You will be asked to make a full payment within a specified amount of time. If the payment is not made, a federal tax lien can be filed.
WHAT HAPPENS AFTER YOUR FEDERAL TAX LIEN IS FILED?
The IRS will proceed to notify you in writing that a lien is going to be filed. If you feel the filing of a lien is being made in error because you don’t believe you owe the taxes, then you may be able to file an appeal.
If no mistake has been made, and the federal lien goes through, the IRS will then file a document in the Public Recorder’s office to notify your creditors of the federal tax lien and to let them know about the legal rights the IRS has over your property. Additionally, the federal tax lien will appear on your credit report and damage your credit score.
The IRS has a limited time to enforce the lien before it expires. The typical expiration timeframe is ten years, but it’s possible for the timeframe of the federal tax lien to be extended.
WHAT CAN YOU DO?
Ultimately it’s best to develop a strategy to avoid the federal tax lien filing in the first place. However, if this is not possible, and the lien has been filed, there are ways to minimize the overall impact that it can have on your life.
There are various resolution strategies that range from filing appeals, negotiating Installment Agreements, securing an Offer in Compromise, requesting ample time to pay the tax debt in full, and even a withdrawal of the lien itself.
The first thing to do is to become more familiar with your situation and the possible solutions. If you would like to learn more about getting a federal tax lien released, download our free guide.
Tax liens can cause a serious disruption to your day-to-day life. Resolving the issue should be your top priority. Whether you think there is a possibility of the IRS filing a lien, you feel it has been filed unlawfully, or you are trying to resolve a current lien, you can use 20/20 as your resource for tackling the problem head on. You can also talk to a tax resolution specialist at any step along the way.
Free yourself from the burden of your tax debt problems. Start your resolution today.
Speak with a tax expert about your situation and your options.