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Federal and State Tax Lien: What It Is and How It Works

What is a Tax Lien?

A tax lien is the government’s claim on your property and is generally placed when a taxpayer, such as a business or individual, fails to pay taxes owed. This does not mean that taxation authorities will seize your property, it just ensures that they get first right to your property over other creditors. A tax lien will remain in place until the tax liability has been paid off, the statute of limitations on the debt expires, or if the taxpayer meets the new IRS Fresh Start Initiative requirements.

Tax Lien Process
When a lien is filed it should not come as a complete surprise. The IRS (and some other state taxing authorities) follow the process below before filing a tax lien on a taxpayer’s property:

Assess a tax amount owed through the taxpayer filing a tax return or the taxing authority filing a substitute return

A tax bill is sent to the taxpayer’s last known address which demands payment

Taxpayer does not pay the tax bill owed in allowed time

After those three conditions are filled the IRS may file a Notice of Federal Tax Lien. This notice will give alert to other creditors that the government has claim to the taxpayer’s property.

Impact of a Tax Lien
Once a lien has been filed it will appear on the taxpayer’s credit report. With a tax lien being present on a credit report it will make it difficult for the individual or business to obtain future credit or loans (e.g. buying a car, home, obtaining a new credit card or signing a lease for a rental). It will also likely have an immediate impact on the taxpayer’s credit score.

The existence of a tax lien will significantly increase the risk to any other lender because the IRS or state taxing authorities get first priority of assets over other lenders. This can make financial life very difficult for the taxpayer.

Releasing a Tax Lien
When a tax lien is released it means that the county records will be updated to reflect the fact that the lien has been released and the IRS or state taxing authority no longer has legal claim to the taxpayer’s property. This does not mean that it will be removed from the taxpayer’s credit report; this can remain up to 10 years. Once the lien is released it will still make it easier to obtain credit because the tax authorities no longer have legal claim over the property. Recently the IRS (with the Fresh Start Program) has made it a bit easier for taxpayers to get liens released. Below are some of the ways a lien can be released:

Direct Debit Installment Agreement: The IRS will consider the removal of a tax lien if the taxpayer enters into this form of payment plan with them. This payment plan automatically withdraws money from your account on a monthly basis to satisfy the outstanding tax debt.

It is found IRS didn’t follow correct procedures: If the taxpayer can prove that the IRS didn’t follow correct procedures when filing the lien then they will release it.

Expiration of statute of limitations: Once the debt has passed the collection statutes then the lien will be released.

Each state has rules on how and when a lien can be released. Once the lien has been released the taxpayer will receive a copy of the lien release and may need to send it to the credit bureaus to get their credit reports updated.

Find the Tax Lien Help You Need

Our tax team is made up of experienced tax experts that understand the inner workings of the IRS and state taxation authorities. We will work with you to figure out the best way to resolve your tax problem and remove your tax lien.

There are many ways to go about resolving your tax lien and we will work with you to find the best option that fits your current and future financial needs. Our tax team will work on your behalf, so give us a call for assistance.

"You guys are the best, great expertise and service.. It was well worth it" - Mrs. Wendy, NJ  

IRS tax lien