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 the taxpayer makes no payment within ten 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 tax lien has been filed. They may also try to contact you by phone, but that is not required.
Q: How will a tax lien affect me?
A: A tax lien used to have a significant impact on a taxpayers credit report. However, since the credit bureaus began removing tax liens, some lenders leverage other products now to assess if the taxpayer has a tax lien. Once the IRS files the tax lien, the tax lien becomes public, and the IRS will have a claim to your property. Since the IRS has priority for property acquired after a tax lien, this makes it more difficult to borrow future money. The tax lien may not show up on your personal credit report (since 2017) but can show up on other consumer and business reports. Also, IRS stated that those who pay off their tax debt or paid it off could request to have the tax lien withdrawn. Furthermore, those who owe less than $25k and set up a direct debit installment agreement can have the tax lien withdrawn (removed from public records) after demonstrating a successful payment history.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.
Q. 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 tax 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 If you paid your tax debts, be sure to ask now for your tax lien to be withdrawn instead of paid or released on your credit by contacting the IRS.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. Tax liens will generally now be filed if you owe $10,000 or more but could be issued 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 not to pay their taxes, they will place a lien to ensure payment of the taxes owed.
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 held by a taxpayer. With a tax levy, the IRS can take money from bank accounts, garnish wages, or even seize physical property owned by the taxpayer.