When a taxpayer falls behind on their federal taxes, the IRS may file a tax lien on the taxpayer’s property. IRS tax liens can cause numerous financial problems for the taxpayer. The taxpayer will almost certainly want to take steps to remove the lien as soon as possible.
What is an IRS Tax Lien?
When you have unpaid tax debt, an IRS tax lien is the U.S. government’s legal claim against your property. A tax lien technically goes into effect when the following occurs:
- The IRS assesses the tax liability
- The IRS sends the taxpayer a Notice and Demand for Payment explaining the amount owed, and
- The taxpayer fails to pay the debt by the deadline.
If only the above steps have taken place, the lien is an unfiled lien which does not impact the taxpayer. The lien becomes a filed lien when the IRS files a public document known as a Notice of Federal Tax Lien. This provides notice to all creditors that there is a federal tax lien on the taxpayer’s property.
Effect of Filed IRS Tax Lien
IRS tax liens are generally filed in the taxpayer’s county of residence or, for business tax liabilities, with the Secretary of State. The lien attaches to almost all the taxpayer’s property, including real estate, vehicles, stocks, retirement accounts, and other financial assets.
An IRS tax lien can cause numerous negative issues for the taxpayer, including the following:
- Lower the taxpayer’s credit score and limit their ability to obtain credit.
- Harm the taxpayer’s business by attaching to all business property and property rights, including accounts receivable.
- Complicate the sale of real estate.
It is also important to note that IRS tax liens will generally survive bankruptcy.
Removing an IRS Tax Lien
The simplest method of removing an IRS tax lien is paying the tax debt in full. The IRS will release your lien within 30 days of payment. If this is not possible, the taxpayer has several options.
Discharge of Lien: The taxpayer may apply for a discharge of the lien by filing an Application for Certificate of Discharge from Federal Tax Lien. If the application is granted, the discharge will remove the lien from specific property.
Withdrawal of Lien: A withdrawal removes the tax lien as if it never existed in the first place. This is generally the best solution, since the lien will not be in the taxpayer’s credit history. However, the tax debt will still be owed. The taxpayer would seek a withdrawal by filing an Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. The IRS’s Fresh Start program provides additional options for obtaining withdrawal of the lien.
Lien Subordination: Subordination does not actually remove the lien, but instead allows other creditors to move ahead of the IRS in priority. This may ease the way for the taxpayer to obtain a mortgage or other loan.
Thorn Law Group | New Jersey Tax Attorney to Assist with Your IRS Tax Lien
If you have an IRS tax lien on your property, speak with a New Jersey tax attorney at the Thorn Law Group to discuss your best options. To schedule a consultation, contact Kevin E. Thorn, Managing Partner, by phone at 201-842-7696 or email at firstname.lastname@example.org.