What is a Tax Lien?
When the IRS is owed money, it has a right to file a lien in your name to secure its rights to collect tax from you. A lien is the right to take your property owned by you or money owed to you until the debt is paid off. The IRS will file a tax lien when a taxpayer owes it more than $10,000 of tax. If you have filed an Offer in Compromise, the IRS will also file a lien to protect its interest as they consider your offer.
How a Tax Lien Works
A lien is not the same as a levy. A levy is when the IRS takes collection action to remove money held in your bank accounts. The lien is just a type of place holder for the IRS.
The IRS stands above most other creditors when being considered for payment. There are rules that require a search of tax liens in your name in the County where you are trying to sell property. This means that if you sell something, the IRS will get paid before you receive proceeds from that sale.
When the IRS files a lien on your name, they would get the profit on the sale of property you own. This makes it so the IRS will get paid before you do. Additionally, liens may also prevent you from finishing financial transactions, such as home refinancing or getting a bank loan. Furthermore, if a tax lien is in place, this will appear on a credit search, and a lender is likely to deny you a loan due to the outstanding tax debt.
How to Remove a Tax Lien
You can get the Tax Lien released if:
- You pay the amount due in full
- The statute of limitations has ended
- You complete your responsibilities under an Offer in Compromise
- You are bonded for the tax amount owed through an IRS program.
You can also get the Tax Lien withdrawn if you:
- Enter into an installment arrangement with the IRS under certain circumstances, including, among other things, having a direct debit payment set up
- The IRS has filed the Notice incorrectly or
- You convince the IRS that it would be in everyone’s (including the IRS) best interests to withdraw the Lien (example: You can prove you would be able to pay off the taxes more quickly if the Notice wasn’t filed).
You may also get the Lien discharged, which a temporary solution, that allows you to lift the lien in order to get financing to pay off your debt. There is a formal application to request a discharge that takes approximately 90 days to complete.
The best way to avoid having a lien filed against you is by paying your taxes timely. If that is simply not possible, you should never ignore IRS letters. Contact the IRS or have a tax professional help you to find a way to settle your tax debt.
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