A tax lien can negatively impact personal and business finances, as well as credit and assets. Here is what you need to know about a Notice of Federal Tax Lien.
A Notice of Federal Tax Lien is a public document that informs creditors and lenders that the IRS has placed a lien on your property. This happens when you do not timely pay your taxes. A tax lien attaches to your house, car, investments, and even property you buy after the lien has been filed. Business property, such as equipment, inventory, and intellectual property may also be encumbered by the lien.
How Does a Tax Lien Differ from a Tax Levy?
Liens are not the same as levies. When the IRS assesses a tax against you and sends you a bill that you do not pay, a federal tax lien is created. The Notice of Federal Tax Lien is a public document filed by the IRS to notify other creditors that the government has a legal claim to your property. If the IRS informs you that it intends to file a Notice of Federal Tax Lien, you have the right to appeal.
What Are the Consequences of a Notice of Federal Tax Lien?
There are three main consequences of a federal tax lien:
- Risk of Seizure
If your taxes are overdue and a Notice of Federal Tax Lien has been filed, you are at risk of losing your property. Seizure is rare, but does happen, especially if you have a large tax balance and significant equity in real or personal property. - Harms Credit
The filing of a Notice of Federal Tax Lien by the IRS may restrict your ability to obtain credit or refinance your property. - Home Sale
In cases where the IRS has a tax lien on your home, sale may be difficult or impossible as the IRS has a claim to the property. Sale may be allowed if done with the intention of using the proceeds to pay the tax lien. If you are refinancing your home, you can ask the IRS to subordinate the tax lien to your new mortgage.
How Do I Remove a Federal Tax Lien?
There are four main methods to removing a federal tax lien:
- Pay Your Debt
Paying your tax debt is the best way to remove a federal tax lien. The IRS will remove the lien within thirty days after full payment of your tax debt. In certain situations, making a lump-sum payment to reduce your tax debt may also result in removal of the lien. If you need assistance in scheduling or negotiating payments, a licensed tax attorney can provide counsel. - Appeal the Lien
If you want to remove your federal tax lien, you can appeal using either the Collection Due Process (CDP) hearing or the Collection Appeals Program (CAP). You may consider appealing:- If you do not owe the taxes listed on the lien.
- If the IRS made a mistake in the lien filing process.
- You paid your taxes in full before the IRS placed a lien on your property.
- If removal of the lien will facilitate payment of the tax debt.
- Offer-in-Compromise
An offer-in-compromise permits you to pay less than the full amount of your tax debt. If you are unable to pay your full tax debt or if doing so would cause a financial hardship, it may be a viable choice. Your offer is generally accepted when the amount offered is the most the IRS or FTB can expect to collect from you in a reasonable amount of time. Before submitting an offer-in-compromise, consult a tax lawyer and review all alternative payment choices. - Bankruptcy
If you file for Chapter 7 bankruptcy, the IRS may release the tax lien after you receive a discharge. Please note that bankruptcy is a last resort to addressing a Notice of Federal Tax Lien. Before filing, consult with a tax attorney to ensure you have explored all other available options.
Have You Received a Notice of Federal Tax Lien?
If the process of navigating your federal tax lien seems scary or overwhelming, contact a licensed tax attorney for assistance. Contact Mindy Meigs expert tax attorney for help with your tax liens.