Tax Liens Are Claims on Your Property
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UPDATED: Jul 16, 2021
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When the federal government calculates that you have a tax liability, they bill you (by sending you what is called, in IRS-speak, a “notice of demand”). You will then have ten days to pay the debt in full. If you do nothing, one action the government might take is to file a Notice of Federal Tax Lien. If you still do nothing, consider this: once they have filed a lien, the IRS is a short step away from seizing your bank accounts and garnishing your wages.
This is serious stuff. The Notice publicly lets your creditors know that the federal government has a claim against your property. The lien is a claim against all your property (your house, your car, etc.). It is a claim against your rights to property (your accounts receivable, for example, if you are an employer), or potentially any other property you acquire in the future.
You may challenge the original tax liability—and thus the lien itself—if you feel it is not accurate. When a Notice is first filed against you for a given tax period, you have thirty days to request a hearing with the IRS’s Office of Appeals. The appeals process offers two main procedures. The most relevant one for this discussion, the Collection Due Process (CDP), is available to certain taxpayers, including those with a lien against their property. CDP allows you to go to court if you do not agree with the appeals decision. For more on IRS collection appeals, see IRS publication 1660.
When a lien is filed against you, your credit rating may take a devastating hit, potentially making it nearly impossible for you to qualify for a loan, get a credit card, or sign a lease. If a lien is filed against you and you do not plan to appeal it, your first priority should be to get that Notice of Federal Tax Lien “released.”
Release of the Notice of Federal Tax Lien is issued within thirty days after you fully pay the debt—including interest and any penalties—or by having the debt adjusted. The lien is also released within that same time frame if you submit a bond that guarantees payment of the debt, including all of the fees charged by the state or other jurisdictions to file and release the lien.
Though the lien is on your property, you still might be able to use that property as collateral for further financing in order to meet your tax obligation. In other words, the IRS might be willing to put its claim to your assets after those of a private financer willing to give you a home equity loan. Read about it in IRS publication 784 for details.
Usually, a lien is released automatically after ten years, provided Uncle Sam has not re-filed the Notice. If a Notice of Federal Tax Lien should be released and is not—whether deliberately or negligently—you have the right to sue the federal government (but not any IRS employees) for damages.
The full amount of your lien is a matter of public record. It remains so until it is paid in full. However, at any time, you can request that your lien payoff amount be updated to reflect the remaining balance due. Just call the IRS’s toll-free customer service telephone number, 1-800-913-6050. You can arrange to receive a letter with the current amount you must pay before the Notice of Federal Tax Lien is released.