There have recently been news stories discussing how the Internal Revenue Service’s budget has recently shrunk to a considerable degree and, as such, that it has been cutting back on audits.
While these stories certainly make for an interesting read, they shouldn’t be interpreted as meaning that the IRS is somehow any less persistent in its attempts to review the tax returns of individuals and businesses, or that it is any less aggressive in its pursuit of taxes owed.
Indeed, one tool that the IRS continues to deploy with great frequency is the federal tax lien.
What is a federal tax lien?
It’s a legal claim that the IRS files against a person’s property when they either fail or neglect to pay off their outstanding tax debt.
How do these liens come about?
First, the IRS will assess a person’s liability and take steps to make sure that the money they owe is entered into the necessary records. Second, the agency will mail the person a document known as the Notice and Demand for Payment outlining the tax debt.
In the event the person fails to pay the amount owed within the designated timeframe, the IRS files what is known as the Notice of Federal Tax Lien, which is designed to notify credits of the federal government’s claim to a person’s property.
What property is covered by a federal tax lien?
A federal tax lien essentially covers the entirety of a person’s assets from their personal property and real property to their business property and future-owned property.
Can a federal tax lien affect a person in any other ways?
A federal tax lien can make it difficult to secure a line of credit and can survive a bankruptcy filing.
Is a lien the same as a levy?
No. A lien secures the IRS’ interest in a person’s property, while a levy is when the IRS actually seizes the person’s property and sells it to cover the tax debt.
What can be done to eliminate a lien?
The IRS indicates that the best way to eliminate a lien is to pay the amount owed and that it will lift the lien with 30 days of receiving payment.
If you are hit with a federal tax lien, it’s important not to panic and to understand that you have more options than you might imagine. Indeed, a skilled legal professional can inform you of these options and help you pursue a viable solution.