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How Do IRS Tax Liens Work?

Accounting and Taxes
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When facing an IRS tax debt, it’s important to settle it quickly, as the consequences of delay can be rather severe. One avenue of recourse commonly used by the IRS to collect an outstanding debt is the tax lien. IRS tax liens give the IRS a legal claim to your property as security or payment for your tax debt.

How Tax Liens Work

With IRS tax liens, the IRS essentially gains an interest in all of your property. You need to realize that IRS tax liens reach all of your property, as well as any rights you may have to additional property (such as your business’s accounts receivable). This also includes any property acquired after the lien has been filed. Once the IRS has a tax lien in place, it may enforce that lien by administratively levying those assets. In other words, once a legal tax lien has been filed, the IRS has the right to seize your property in order to satisfy the tax debt.

The Filing of the Lien

There is a process by which IRS tax liens can be filed. First, the liability needs to be assessed and you must have been served with a Notice and Demand for Payment, which is essentially a bill telling you what you owe. Once you receive this notice, if you neglect or refuse to either pay the IRS tax debt or negotiate a debt settlement agreement within 10 days of notification, then a Notice of Federal Tax Lien can be filed. Once the tax lien has been officially filed, your creditors are then publicly notified.

Getting the Lien Released

In order to get an IRS tax lien released, you as the taxpayer must obtain a Certificate of Release of Federal Tax Lien. The IRS will generally not release this certificate until the tax is paid in full or a debt settlement agreement has been reached. Once the situation qualifies for a release of the tax lien and the certificate has been issued, the IRS will remove the lien within 30 days. Other situations that result in the release of IRS tax liens include: if it’s found that the notice was filed too soon or in error, or if the IRS determines that the removal of the lien will speed up the repayment of the tax debt or will otherwise benefit both the taxpayer and the government.

Consequences of a Tax Lien

It’s important to be aware that once a lien is filed, your credit rating may be harmed. This can potentially prevent you from securing a home or car loan, obtaining a new credit card, or signing a lease. Even if you make a partial payment against your tax debt, the tax lien will stay in place until the remainder of the balance is paid.

Not only do IRS tax liens freeze up your assets, but they take time to be released and in the meantime can really devastate your credit. If you owe taxes to the IRS, it’s always prudent to settle your tax liability within the grace period allotted before a tax lien becomes necessary.

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