What Is An IRS Tax Lien?An IRS tax lien is a legal claim by the US Government against your property as security for payment when you owe a back tax debt. Before a Federal tax lien exists, the IRS must:
- Assess a tax liability to you;
- Send you a Notice and Demand for Payment;
- You must also neglect or refuse to pay the tax debt within 60 days.
To have priority over other creditors, the IRS must file a Notice of Federal Tax Lien (NFTL) to be recorded according to state law, usually with the County Recorder of Deeds or Secretary of State's office, or both. A NFTL may be recorded in multiple counties and multiple states, depending on where the taxpayer resides and where property is located.
How Will an IRS Tax Lien Affect Me?A NFTL will notify other creditors of the government's right to your property. It may prevent you from selling assets, lower your credit score, make it very difficult for you to borrow money and may even prevent you from opening a new bank account. A tax lien even attaches to any future assets you may acquire while the lien is in place. If you owe business taxes, a tax lien will attach to your businesses property, even accounts receivable.
Do I Have a Tax Lien or Levy?Many people confuse liens and levies, and vice versa. While a tax lien secures the US Government's position to collect a tax debt, a levy actually transfers the asset to the IRS to satisfy the tax debt. For example:
I owe the IRS $10,000 in back income tax. I also have $20,000 in my savings account. The IRS tax lien merely claims a right to $10,000 of my $20,000 in the bank. A levy will actually cause the bank to remove my $10,000 and send it to the IRS as payment to satisfy my debt.
Read about IRS levy release.
Will The IRS Ever Consider Not Filing A NFTL, Even Though I Owe The Tax?Yes. The IRS will consider not filing a NFTL if you owe income tax under a certain amount ($50,000 as I write this) and set up a formal Installment Agreement to satisfy the debt. The Service may also consider not filing a NFTL if it would get in the way of collection efforts. For example, if you are refinancing your home to pay your tax debt, a tax lien would prohibit the closing and therefore hinder collection of the tax.
Businesses that factor accounts receivable or operate on a floor plan may also fit the IRS criteria for not filing a NFTL.
Can I Appeal An IRS Tax Lien?Yes. You can Appeal an IRS NFTL before and after it has been filed. To Appeal a NFTL before it is filed, request a CAP using form 9423. To Appeal a NFTL after it has been filed, request a CDP using form 12153.
Will The IRS Ever Withdraw A Tax Lien Before The Total Tax Debt Is Paid?Yes. Under certain conditions, the IRS will consider the Withdrawal of a tax lien, the Subordination of a tax lien and a Certificate of Discharge of a tax lien.
How Long Will It Take The IRS To Release My Tax Lien After I Full Pay My Tax Debt?The IRS states that a Release of Federal Tax Lien will be sent to the recording office within 30 days of full payment of the tax liability.
What If The IRS Has Filed A Tax Lien And It Has Attached To The Wrong Person?Sometimes the IRS files a NFTL, and it will attach to the wrong person. This often happens in families in which individuals in multiple generations share the same name - grandfather, father and son, each named Joe. For example, the IRS may file a tax lien against Joe Taxpayer, and the lien may wrongfully attach to Joe Taxpayer Jr. If this has happened to you, refer to IRS Publication 1024, How to Prepare an Application for a Certificate of Nonattachment of Federal Tax Lien. Use it as a guide to help you submit your request for Nonattachment in writing.
The IRS can issue a Certificate of Nonattachment stating the tax lien does not attach to the innocent person or the innocent person's property. In the case of our example, the innocent person is Joe Taxpayer, Jr.