What is a Federal Tax Lien?
A federal tax lien is the government’s legal claim against your propertywhen you neglect or fail to pay a tax debt. The lien protects the government’s interest by attaching to your assets, including real estate, personal property and financial assets.
When Does the IRS File a Tax Lien?
The IRS files a tax lien against your property when you have failed to pay your back tax debt. Before a lien is filed, the IRS must first send out a Notice and Demand for Payment letter. If you don’t respond by full-paying your tax liability, the IRS is allowed to file a tax lien against certain property or assets. This allows the IRS to protect the interests of the government. The tax lien lasts until you pay your tax liability in- full, or until the statute of limitations runs out, usually ten years.
Consequences of a Tax Lien?
Once a lien is filed, it becomes public record that the IRS has a claim on your property. The tax lien protects the IRS as a creditor, and allows them to collect in the event you sell your assets. Tax liens also give the IRS the right to seize property, and this may happen if you do not take action to begin repaying your tax liability.
The filing of a tax lien will appear on your credit report, and harm your credit rating. In fact, the filing of a tax lien can result in an immediate 100-point drop to your credit score.
When a tax lien appears on your credit history, it may hurt you in the following ways:
- Prevent you from buying home
- Increase finance cost when buying a car
- Increase chances of being rejected for a lease
- Create difficulties in obtaining a credit card
Another problem is that many employers now check your credit report. A tax lien could ultimately affect your getting (or keeping) a job.
How To Get Rid of an IRS Tax Lien?
Generally, there is little that can be done to prevent the IRS from filing a tax lien against you, if you do not pay your tax liability in full. If you can borrow money to pay off your tax debt, do it. Chances are you will pay less in interest to the source you borrow from, than you will pay to the IRS. Paying your tax debt down below the $25,000 level may help as well, if you are able to make the subsequent monthly payments, but, there are no guarantees.
If you find that you cannot full-pay your tax bill, and are in need of having your IRS lien withdrawn or discharged, consult with a tax professional. An expert in the field of ‘tax resolution’ can help analyze your situation, and determine your best course of action.