Federal Tax Liens

Federal Tax Liens

The IRS may file a federal tax lien if a taxpayer owes back taxes. According to the Internal Revenue Code, Section 6321, “[i]f any person liable to pay any tax neglects or refuses to pay the same after demand, the amount including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition there to, shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.” The IRS files tax liens to assist in its efforts to collect the taxes owed. A lien gives the IRS a legal claim to your property as security or payment for the tax liability. A tax lien is different than a wage garnishment or bank levy.

Before the IRS may file a Notice of Federal Tax Lien the IRS should first assess the tax liability and then send a Notice and Demand for Payment notifying the taxpayers of the taxes owed and the need to pay them. If the taxes are not paid in full within 10 days after notified by the IRS, then a lien may be filed for the amount of the tax debt. Once the lien is filed, public notice is given to creditors that the IRS has a claim against property owned. This includes property acquired after the lien is filed. The lien attaches to all of a taxpayer’s property (such as homes, land and vehicles) and to all of a taxpayer’s rights to property (such as promissory notes or accounts receivable).

In order to have a lien released a taxpayer must obtain a Release of the Notice of Federal Tax Lien. Generally, the IRS will not release a lien until the tax has either been paid in full or no longer has a legal interest in collecting the tax. The IRS has standardized procedures for lien releases, discharges and subordination. In situations that qualify for the removal of a lien, the IRS will generally remove the lien within 30 days and the taxpayer may receive a copy of the Certificate of Release of Federal Tax Lien.

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