Taxpayers beware: The dangers of federal tax liens

Many taxpayers do not realize all the different tools the IRS can use in its attempts to collect taxes owed. One way is through a federal tax lien. A lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. Tax liens have a significant impact on your assets and credit so you need to act quickly if you want to get rid of them.

Facts about liens:

Liens encompass all your property. The lien protects the government’s interest in all your property, including real estate, personal property, and financial assets. It also attaches to business property, including accounts receivable.
The IRS doesn’t have to file a lien. If a tax isn’t paid after a formal demand, the Tax Code grants the IRS an automatic lien against all of a taxpayer’s property and rights to property. This “silent lien” even attaches to property acquired after the IRS assessed liability. The IRS files a Notice of Federal Tax Lien to establish collection priority against other creditors.
Liens affect your credit even if the tax liability is paid. Despite the taxpayer’s rights to protest the lien and even after the liability is paid in full, a federal tax lien still hurts the taxpayer’s credit. This is because the lien is public and searchable and shows up on your credit report for 7 years.
Bankruptcy may not eliminate a federal tax lien. Even if you file for bankruptcy your tax debts and liens may continue after the bankruptcy.
Liens can prevent you from selling property and obtaining or refinancing loans. Banks, potential buyers, and other parties do not want to worry that the IRS will go after assets in the future. Unless you can get rid of the lien, it will be difficult for you to conduct many financial transactions.
So how can you get rid of a lien? We’ll cover that in our next post.

If you are or could be subject to a federal tax lien, contact us for a consultation.