IRS Tax Liens

How a Federal Tax Lien Works

A tax lien is the first major step the IRS takes against taxpayers in order to collect delinquent taxes. The IRS uses the lien to secure claim to assets in order to ensure the taxpayer pays their taxes owed. Understanding how a tax lien works is important in order to figure out how to get the IRS to remove it. Please call Dale O’Neal for help at 800-651-0528

What is a Tax Lien? Why IRS Uses Federal Tax Liens

What is a Tax Lien?

The IRS places tax liens on property in order to help secure payment of taxes that are owed. A tax lien is the government’s claim to your property. Once a notice of federal tax lien is filed it attaches to just about everything you own, have rights to, or that property has rights to. This means that if you try to sell or make money off of your “property”, the IRS has the right to take its cut to cover the amount of taxes owed, plus interest and penalties. A tax lien will remain in effect until the liability for the amount assessed becomes satisfied or becomes unenforceable by reason of lapse of time.

When the IRS will Impose a Tax Lien?

The IRS will impose a tax lien when there are unpaid tax amounts and you have failed to pay or take action when the IRS sent a notification. The IRS states that they may file a notice of federal tax lien only after the following three steps have been made:

  • The IRS assessed you with a tax liability
  • The IRS sent a notice to demand payment of the tax liability
  • You did not pay the debt in full within 10 days after you were notified about the tax liability

Once the IRS takes these three steps they can file a notice of federal tax lien. A lien will then be placed on your property for the amount of taxes owed plus interest and penalties. The IRS will not check to see what property you own before filing it because it doesn’t matter to them. Once the lien is filed it will cover any assets you currently own or any assets you may own in the future.

Effects of a Federal Tax Lien once it is Recorded

Once the notice of federal tax lien is recorded all of your creditors are notified that the IRS has a claim against all of your property and all property that is acquired after the lien is filed. The IRS has some of the most powerful collection mechanisms and even if you owe other creditors, the IRS is typically a priority over them. For that reason, it will make it nearly impossible to borrow or make large purchases in the future.

Example: If you want to buy a home and you borrow money from the bank, that bank typically will have dibs on your house if you cannot pay your mortgage, but once you have a tax lien placed on your property and future property the bank will no longer have first dibs, the IRS will. For this reason the bank views you as being too risky and will not lend money because they will require more risk in lending you the money

Once a lien is placed it will be nearly impossible to hide it from creditors because it will be easily accessible to the public through public records and tax lien notices are picked up by all the major credit reporting agencies. So in essence, a lien severely impacts your credit rating and may make it extremely difficult to get a house, buy a car, get a new credit card or sign a lease.

Fortunately, at the beginning of 2011 the National Taxpayer Advocate released a report that may have led to the IRS making changes to their tax lien policy (which will be reviewed in a year). Basically, in most cases, the IRS increased the tax debt threshold for issuing a tax lien from $5k to $10k, and made it easier for taxpayers who owe less than $25k to have a tax lien withdrawn after a few successful direct installment agreement debit payments are made. For anyone who paid off their taxes or resolved them, but are facing the negatives consequences of their credit showing that a tax lien was “released,” can request to have the tax lien withdrawn. Again, the taxpayer needs to request it from the IRS.

Property Subject to Tax Liens

The federal tax lien will attach to all property owned by the taxpayer as well as all rights to property. This includes all future purchases or property acquired after the lien was placed. The wording is kept really broad to allow the IRS to attach the lien to anything that could be of value. Property can include both tangible and intangible items. With that being said there is no complete list of property that is subject to a tax lien because it really can be anything. Below is a list of common property effected by a tax lien.

  • House
  • Motor Vehicles
  • Accounts Receivable
  • Remtal Income
  • Securities

The purpose of the tax lien is to make the taxpayer pay the taxes they owe. The IRS tries to make it so it is easier for the taxpayer to pay off the taxes they owe or to come to some sort of settlement with the IRS rather than trying to live with the effects of the tax lien

How We Release A Tax Lien: Guide on Removal of a Federal Tax Lien

Once the IRS files a notice of federal tax lien the effects of the lien will remain intact until you get back into compliance with the IRS. In order to release a tax lien you will need to obtain a certificate of release of lien from the IRS. The IRS will need to ensure that your tax liability will be fufilled in order to issue the release. It used to be rare that the IRS would release a tax lien without the liability being fufilled but recent policy changes (February 2011) by the IRS states that taxpayers who enter into a direct debt installment agreement can have tax liens withdrawn in most cases.

There are a few main ways the IRS will release a tax lien (or withdraw it with the policy changes recently). Below are the details on each method. Once either of these conditions has been satisfied, the IRS will have 30 days to release the tax lien.

The Taxes Owed Are Paid in Full

The IRS will release the lien once they have received all tax amounts owed, plus interest and penalties. Before the recent announcements in policy changes, a tax lien that was released still showed on your credit history or report as “paid” or released which impacted taxpayers negatively in other ways. The IRS decided to make a change whereby the taxpayer can request to have the tax lien withdrawn so the credit stain of a tax lien is removed. They IRS has begun to streamline processes in order to provide tax lien relief to thousands of taxpayers. This policy will be reviewed in 2012.

Setup a Direct Debit Installment Agreement

Many times taxpayers cannot pay off the taxes in full so the IRS has Payment plans available for taxpayers to pay off the taxes overtime. If you choose to pay off the taxes overtime, the lien will still remain in effect in most cases, unless you setup a direct debit installment agreement. As long as you have less than $25,000 in tax debt, generally as of February 2011 or thereafter, an IRS Installment Agreement that is setup with a payment arrangement as direct debit (which means monthly payments are automatically withdrawn from your checking account) can lead to a tax lien being withdrawn upon request. The IRS states though first a period of succussful payments must be shown before the lien will be withdrawn. Before these policy changes, or if you setup a different type of agreement, the IRS will not reduce the tax lien when payments are made, meaning the entire balance of the tax lien will show until the total amount of taxes are paid.

Taxes Are Settled Through An Offer In Compromise:

The IRS recently relaxed requirements on the Offer In Compromise program. Notably, you can have annual income up to $100,00 now and owe up to $50,000 to qualify with a new Streamlined Offer In Compromise program. The Offer In Compromise program allows taxpayers to settle their taxes owed for less than the total amount. In order to qualify for this the taxpayer will be required to meet a strict set of requirements set forth by the IRS. The taxpayer must make an offer to the IRS for an amount that is equal to or greater than what the IRS would ever expect to collect from the taxpayer, even if they used forced collection mechanisms. An Offer In Compromise is one of the the hardest settlement methods to qualify for and it has a very high denial rate. If you are considering an Offer In Compromise it is highly advised that you use an experienced tax professional to file for you. A tax professional will also assess your situation and determine if you are a likely candidate to receive this type of relief before applying.

Statute of Limitations Expires With Lien Not Enforceable

Like most other debts, IRS debts have a statute of limitations. The typical period is 10 years from the date the IRS sends out your first assessment notice of taxes owed after you have filed. Sometimes the statute of limitations can be extended if bankruptcy was involved and the tax was not discharged, an offer in compromise was filed, form 900 was sign allowing the IRS more time to collect or several other sly tactics the IRS has been known to use.

IRS Accepts a Bond Guaranteeing Payment of Tax Debt

The IRS will remove the lien within 30 days of them accepting a bond that you submit to them. This bond will guarantee your payment of the taxes owed and is almost the same thing as paying the taxes owed in full. It may be difficult to qualify for a bond because the requirements pretty much require you to have enough money to pay the taxes owed in full.

Once 30 days have passed after you have met any of the above requirements the IRS should release the lien and again becuase of recent policy changes you can request it be withdrawn in most cases. In many cases, the IRS will not release the lien, in which case a little bit of work on your part must be done to get things straightened out. One way you can go about this is by contacting the Centralized Lien Unit by calling the toll free telephone number, (800) 913-6050. You may have to show them some proof the tax was paid and a written acknowledgment of the payment from the IRS. Also, once you get the certificate of release you must record it if the IRS does not. You can also send a copy of the certificate of release to the three major credit bureaus to make sure it gets updated in your credit report that the lien was released.

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 no payment is made within 10 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 lien has been filed. They may also try to contact you by phone, but that is not required.

Q: How will a tax lien effect me?

A: A tax lien will have a major impact on a taxpayers credit report. Once the lien is filed all of your creditors will be notified and the IRS will have claim to your property before any other creditor. Since the IRS has claim before any other creditor this makes it nearly impossible to borrow future money. The tax lien will show up on your credit report and will be available to all lenders to see. Recently, the IRS stated that those who pay off their tax debt or paid it off can request to have the tax lien withdrawn from their credit altogether. Furthermore, those who owe less than $25k but setup a Direct Debit Installment Agreement and 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 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. It has been reported that tax liens will generally now be filed if you owe $10,000 or more but could be filed 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 to not pay their taxes they will place a lien to ensure they will get payment of the taxes they owe.

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 owned by a taxpayer. With a levy the IRS can take money from bank accounts, garnish wages, or even seize physical property owned by the taxpayer.

IRS Tax Lien Help: Relief from Your Federal Tax Lien

A tax lien can have a devastating effect on a taxpayers credit and financial well being. We will match you with the best tax firm that can help sort through your tax problem in order to find the best plan of action to take in order to resolve your tax lien. Depending on your financial situation and tax situation there are many different courses of action. You can be assured that you will find the best one because you will be able to talk with multiple tax professionals and get various opinions. Tax liens can be extremely complicated, especially if you have never handled one before. All of our tax professionals are experienced in handling tax liens and have worked many cases to resolve them successfully.

How it Works

  • Consult with us
  • We determine the best solution for handling your tax lien
  • Find out if an offer in compromise is a likely option to remove the lien and settle taxes owed for less.
  • Find out if any errors are discovered in the tax lien process and get an immediate appeal of the filing of the tax lien.
  • Our office will file the appropriate documents with the IRS to stop the IRS from harassing you. All communication from the IRS will be routed to your chosen tax firm.
  • My office then prepares all necessary documentation and negotiate on your behalf.

Get Dale. Call 817-877-5995 or toll free at 800-651-0528.

Serving the following areas:
Most people think that my practice is limited to Fort Worth, Dallas, Arlington, Bedford, Hurst, Euless, Burleson, Blue Mound, Colleyville, Crowley, Grand Prairie, Grapevine, Keller, Mansfield, Saginaw, Haslet, Cleburne, Weatherford, Denton, Southlake, Trophy Club, Watauga, Westlake, Westover Hills, White Settlement, Addison, Balch Springs, Carrolton, Cedar Hill, Combine, Coppell, Dallas, DeSoto, Duncanville, Farmers Branch, Garland, Highland Park, Irving, Mesquite, Richardson, Rowlett, Sachse, Seagoville, Sunnyvale, University Park, Mineral Wells, but I practice nationwide in U.S. Tax Court.

It is recommended that you work with a tax professional or tax relief service that specializes in helping individuals achieve penalty abatement.