A federal tax lien is the mechanism by which the Internal Revenue Service (IRS) enforces the tax obligations of taxpayers that have fulfilled those obligations. Typically, such a lien will be filed once a taxpayer’s liability has been assessed, a Notice and Demand for Payment has been sent to the taxpayer, and the taxpayer has failed to make the necessary tax contribution. Internal Revenue Service, Understanding a Federal Tax Lien, available at https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Understanding-a-Federal-Tax-Lien.
A lien is basically a public filing that puts creditors on notice regarding the lien. By informing current and would-be creditors that the IRS has an interest in your property, a taxpayer may be prevented from using the assets on which the lien is placed as a financial basis for obtaining credit of any kind. There are a number of ways for the taxpayer to deal with such liens if placed on the taxpayer’s assets, the best of course being the payment of the tax obligations in question. That said, there are a number of other options available to taxpayers, which may mitigate or altogether extinguish the negative implications of a federal tax lien, including a request for a dispensation allowing for he discharge of property, subordination of the federal tax lien to allow for the taxpayer to obtain certain loans or credit, or an application for a withdrawal of the lien.
In understanding a federal tax lien one may need to distinguish between a federal tax lien and an IRS levy on one’s assets. While a lien merely secures the government’s interest in a taxpayer’s property, a levy does more than secure it; a levy is the actual taking of that property in order to settle the taxpayer’s outstanding obligations. As a result, a taxpayer’s property is not lost simply because the IRS has filed a lien on that taxpayer’s property. A taxpayer with a lien on his or her property still has more than enough time to address the issue and go about having the lien withdrawn or subordinated, or to have property sold free and clear of the lien. Still, if a taxpayer falls into this situation, there is no reason to waste any time; the issue should be addressed in a timely manner, so that the IRS can provide alternatives to the taxpayer that will still assure payment of the taxpayer’s outstanding tax obligations.
In short, a federal tax lien will substantially affect a taxpayer’s assets and the ability to dispose of those assets, as well as the ability to obtain credit, and even survive bankruptcy if left unsatisfied. As a result, it is important to contact an experienced an attorney and promptly deal with a federal tax lien before these negative implications are felt by the taxpayer.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.