A lien is a legal claim or right against someone else’s property, usually for the payment of a debt. The IRS can place a lien on your property if you owe taxes and have failed to pay them. This can be a very stressful and difficult situation to deal with, but it is important to know your rights and options if you find yourself in this situation.
If your situation with the IRS has gotten to this stage, it’s time to contact a tax professional. They can help you to determine what your options are in dealing with the IRS to minimize their impact on your life.
When does the IRS File a Lien?
The IRS has the power to issue a lien when taxpayers fail to pay back taxes, which must be paid within 10 days of the IRS sending the taxpayer a final notice of intent to levy. If you fail to pay the taxes within 10 days, the lien will be automatically filed with the County Recorder’s office. The IRS may also issue a lien when a taxpayer fails to respond to an IRS request for information or fails to make an installment payment promised under a payment plan. A lien might also be issued if the taxpayer violates the terms of an offer in compromise or fails to provide information the IRS is requesting to verify a claim of innocent spouse relief.
After the IRS files a lien, what happens?
When the IRS files a lien, it will make a public record of the lien and its amount. This will be included on your credit report, which means that your credit score will be affected. The IRS will send you a letter, called a Notice of Federal Tax Lien, detailing how much is owed, when it is due, information about payment options, and how the lien affects your rights. The IRS may take other collection actions such as wage garnishment and seizing funds from your bank accounts.
While the IRS has the right to seize and sell your property, they only take that action in extreme cases. They do not want to have the cost of the seizure, securing, and finding a buyer for your stuff. Instead, they would rather wait and seize any proceeds should you sell your property.
How can I get rid of an IRS Lien?
The most effective way to get rid of an IRS lien is to pay the debt in full. Once the debt is paid, the IRS will remove the lien from the public record. You can also request a withdrawal of the lien in certain cases. This is when the lien is withdrawn, but the debt remains. Generally, your debt must be less than $25,000 or you have a good reason why it is in the government’s best interest to make the withdrawal.
How long does an IRS Lien stay in place?
IRS liens stay in place until the tax debt is paid in full or the statute of limitations expires. The statute of limitations is a time frame of 10 years from the date the taxes were assessed. This date will be extended if collection activities are suspended due to actions such as filing bankruptcy or requesting an Offer-in-Compromise.
To wrap things up
The initial impact from a federal tax lien is a hit on your credit report. Usually, nothing else happens until such time that you want to refinance or sell your home. The IRS will negotiate with you about subrogating their lien so that a refinance can happen provided you give them some or all of the cash proceeds. The IRS in almost all cases will grab your share of the proceeds from the sale of your home or another real estate.