When does the IRS file a tax lien against you? And what is it? In general terms, a lien is a legal claim that one entity has over the property of another, entitling one party to be paid a debt. When it is applied to taxes, an IRS tax lien is a claim that the US federal government has on your money and property. It states that you owe a certain amount for your unpaid taxes.
Also, an IRS tax lien states that the government now has a certain legal authority over your possessions—including your assets, personal property, and real estate—until you pay the tax debt. When the government issues the lien:
- It records that you owe a debt
- The agency sends you a notice that you owe a specific amount and demands payment
- It issues a public Notice of Federal Tax Lien to tell other creditors that the government has the first claim over your property
While a lien is a public notice, a tax levy is different. It is the order to actually seize your property to pay the debt. It can also be used to garnish your wages (take part of your paycheck before you see it).
Why Are IRS Tax Liens Important?
A tax lien becomes associated with your assets, such as vehicles, real estate, and financial securities, including future assets. It can also be associated with your business property and assets. Plus, the lien and debt can linger after bankruptcy.
When you decide to sell your home, if you have not paid off your tax debt, the lien must be satisfied before you can complete the sale. This is because the property is still associated with the government debt. To pay it off, you can:
- Pay the lien during the property closing using the proceeds of the sale
- Request that the IRS allow the home sale without the lien being paid off, either by discharging it or allowing a mortgage company’s loan to take precedence over the IRS lien
The Notice of Federal Tax Lien may also affect future potential creditors. You might have trouble getting a loan if you don’t first pay off your tax debt.
How long does an IRS tax lien stay on your credit report? These rules have changed. Tax liens used to affect your credit score, but credit reporting bureaus have now decided to stop adding them to your credit report. They won’t affect your credit score, but creditors can still see the Notice of Federal Tax Lien. Many will use it as a factor when deciding whether to extend credit.
How Long Do Tax Liens Last?
A lien stays in existence until either the debt is paid or the lien can no longer be enforced because too much time has passed. The IRS usually has 10 years to collect, although that time limit can be extended in certain situations. There are many tax laws on the books that relate to liens, and new ones could be added.
The best practice is just to pay your tax debt as soon as possible and seek out excellent tax help and advice to make sure you’re not adding to your problems. Once you pay it off, your tax lien will be dissolved within 30 days. You can also request the IRS make special arrangements for you, such as paying off your debt in installments or settling your debt for a different amount.
The best strategy is to avoid further tax debt and improper filings. Contact Tax Help MD for help with a tax lien or any other type of tax service. Call now to schedule a friendly, helpful meeting with a tax professional.