What Is an IRS Tax Lien and How Do You Handle It?

Last updated: Apr 20, 2019

What Is an IRS Tax Lien?

So what exactly does a federal tax lien entail? The answer is that an IRS tax lien is different for everyone. They can be complicated and often vary in form depending on what your individual situation is.

Essentially, an IRS tax lien is the government’s claim against you as a result of you neglecting or failing to pay a tax debt. It can place a lien on some or all of your property, depending on how much you owe. These assets can include any personal or real estate property and your financial assets.

The lien may occur at the state level or at the federal level. A tax lien doesn’t necessarily mean that the IRS will seize your property but rather it ensures they have first dibs on it over other creditors.

What Steps Are Taken Leading up to The Lien?

Before a tax lien is placed on your property, there are steps the IRS will take, including attempts to contact you and inform you of a debt owed.

The IRS will put your balance (whatever you owe) on the books and will send you a “Notice and Demand for Payment.” Once you have neglected to pay the debt on time, they will file a public document called a “Notice of Federal Tax Lien” in order to alert creditors that the government has a legal right to your property.

Not only can this be a terrifying notice to receive, but it can also be embarrassing and has the potential to greatly affect both your job and your life. But you are not alone. In fact, over 600,000 federal tax lien notices were filed in 2013.

How Do You Get Rid of the Lien?

The easiest way to get rid of a federal tax lien is to pay your bill. But more often than not, that isn’t a financial option for the individual or business affected by the lien.

Another way to potentially remove a tax lien is to enter into a Direct Debt Installment Agreement with the IRS. It’s essentially a contractual payment plan that you enter into with the IRS. To acquire payment, the IRS will remove the agreed upon amount from your bank account each month until the debt is paid.

Another way to get rid of the lien is to prove that the IRS didn’t follow procedures correctly when filing the lien. While it’s not a common occurrence, it can happen and it’s essential to check it out as a possibility when facing the detriments of a lien.

The expiration of the statute of limitations is another way the lien will disappear. If the debt has passed collection statutes then the debt could ultimately disappear. This isn’t necessarily a viable option though as waiting it out could cause many awful and embarrassing bumps along the way. Furthermore, the IRS has ways of extending statutes, depending on the individual situation.

What About Tax Forgiveness?

In 2008, the IRS launched a program called the Fresh Start Initiative. It includes an Offer in Compromise which allows for certain individuals to pay less than what they owe. 

The IRS will consider your income, expenses, asset equity, and ability to pay in determining if you’re eligible and if so, what that amount will be. It can be easier than you think.

In fact, anyone who doesn’t have the ability to pay their debt has the potential to qualify for this break. Wage garnish relief is another option. This is when the IRS takes a certain amount from your paycheck each time you get paid. But if you can prove that you aren’t left with enough to survive after the amount is taken out, you can get released from the program.

You can also file for “uncollectible status” which temporarily freezes your account with the IRS and buys you some time to get back on your feet so that you can eventually pay your bill in full or enter into a payment agreement contract.

The statute of limitations for the IRS to collect a debt is typically 10 years. If you’re close to that point when a federal tax lien is placed on your assets, it might be in your best interest to wait it out.

What Is an IRS Tax Lien Going to Do to Your Life?

Even though we’ve covered the basics, you may still be wondering, “What is an IRS tax lien?” If you are, you’re not alone. It’s safe to say that if you’ve reached this point, your best bet is to hire a professional tax expert who can help you get out of your unfortunate situation.

Believe it or not, there are still things which could make your situation worse like opting not to file the current year’s taxes. 

Letters are daunting but the smartest thing you can do is decide to stop avoiding them. Even though it might seem impossible, there are many options in creating a path for yourself that will lead you to financial freedom. 

Contact us today for a no-obligation, free consultation so that we can put your mind at ease and help you get out of tax debt.