What Are Tax Liens?

Past Due Tax Debt

Past due tax debt can lead to the creation of tax liens for the amount owed. Tax liens provide a legal claim to all property (including your house and car) for the amount owed and, in the case of business owners, a claim to accounts receivable.

Tax Liens Filed by IRS

A federal tax lien is an encumbrance filed by the Internal Revenue Service upon the property of a person or a corporation and forms the basis of any future attempt to force collection of the monies owed to the IRS. Although not necessary, the IRS most often files a Notice of Federal Tax Lien in the office designated by the state, which is nearly always in the county land records where the real property or principal office of a corporation is located.

Financial Effects

The effect of filing The Notice of Federal Tax Lien is that it places the public on notice that a lien exists against an individual or corporation and, in effect, places a "cloud" on the title to the real property owned by an individual or corporation. In order for an individual or corporation to borrow money, for example, this encumberance, generally, needs to be released on record and the title "cleared". A recorded lien often prevents the sale of real property and the use of real property as collateral until it's cleared of record, or other provisions are made to deal with money owed.

A federal tax lien can attach to all property and "rights to property" of an individual or entity liable for the tax.

Your lien remains a matter of public record until paid in full. This includes accruals and additions to the amount owed. An updated lien payoff amount showing the current balance due is available by calling the IRS Central Lien Processing Unit's toll-free customer service at 1-800-913-6050.

Other Factors to Consider

Other factors to be considered and researched regarding your specific situation include:

  • The duration of the lien
  • Refiling of the lien
  • Whether it is or is not enforceable
  • How to have this legal liability released

Filing of a lien can harm your credit rating, preventing you from getting a loan to buy a house or a car, and even hurt your chances of obtaining a new credit card. It's vital that you put forth the effort to resolve your tax liability before a lien filing becomes necessary.

How to Avoid Tax Liens

To avoid this mess, follow Generally Accepted Accounting Principles, file your taxes and pay them when due. If you fall behind in paying your taxes, it can lead to a world of financial hurt.

Consult an Attorney

This article is not intended to be a complete treatise on federal tax liens but a source of information. It is certainly not to be considered legal advice in any way. In fact, if you have any question regarding the subject and/or its possible effect on any type of property, either real or personal, you should consult an attorney who specializes in tax law.

What Are Tax Liens?