Tax Lien Frequently Asked Questions (FAQ)
Q: How will you know if a tax lien has been placed on your property?
A. Before the IRS can place a tax lien they will first assess a taxpayer with a liability and demand payment. If no payment is made within 10 days of the demand the IRS can send out a notice of federal tax lien. The IRS will then send you in the mail a notice of federal tax lien after the lien has been filed. They may also try to contact you by phone, but that is not required.
Q: How will a tax lien effect me?
A: A tax lien will have a major impact on a taxpayers credit report. Once the lien is filed all of your creditors will be notified and the IRS will have claim to your property before any other creditor. Since the IRS has claim before any other creditor this makes it nearly impossible to borrow future money. The tax lien will show up on your credit report and will be available to all lenders to see. Recently, the IRS stated that those who pay off their tax debt or paid it off can request to have the tax lien withdrawn from their credit altogether. Furthemore, those who owe less than $25k and setup a direct debit installment agreement, can have the tax lien withdrawn (removed from public records) after demonstrating a successful payment history.
Q: What property is subject to a tax lien?
A: A tax lien covers all property a taxpayer owns plus any future property they may acquire. The rule keeps it very broad and open to interpretation and can pretty much cover anything. The property can be both tangible assets and intangible assets.
Can a tax lien be released?
A: Yes, a tax lien can be released. The IRS requires you to get back into compliance with your taxes for the lien to be released. You can release a tax lien by paying in full, settling through an offer in compromise, letting the statute of limitations expire on the tax debt, or if the IRS accepts a bond that guarantees payment of the tax debt. If you paid your tax debts, be sure to ask now for your tax lien to be withdrawn instead of paid or released on your credit by contacting the IRS.
Q: How can I avoid a tax lien?
A: The best way to avoid a tax lien is to stay in full compliance with tax law. If you find you cannot pay taxes it is best to contact the IRS and make an agreement with them to pay your taxes back through one of the various settlement mechanisms instead of avoiding or not taking immediate action on IRS notices that have been received.
Q: Why did the IRS file a tax lien on my property?
A: The main reason why the IRS files tax liens are because of unpaid income taxes. It has been reported that tax liens will generally now be filed if you owe $10,000 or more but could be filed with smaller debt amounts. There can be various reasons as to why taxes were not paid, but when the IRS finds a taxpayer that they feel may be trying to not pay their taxes they will place a lien to ensure they will get payment of the taxes they owe.
Q: What is the difference between a tax lien and tax levy?
A: A tax lien is only the governments “invisible” claim on the property that is owned by the taxpayer, but a tax levy is the actual seizure of the assets owned by a taxpayer. With a levy the IRS can take money from bank accounts, garnish wages, or even seize physical property owned by the taxpayer.