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Understanding the IRS Federal Tax Lien

Gaurav Bhola, MSM, Managing Editor

A tax lien is a lien upon a property to secure payment of owed taxes. Tax liens are imposed by governments upon citizens for delinquent taxes owed on personal or real property or due to inability to pay income taxes or other taxes.

Federal Tax Lien

A federal tax lien provides a legal claim to your real or personal property as to secure your tax debt. The Internal Revenue Service (IRS) files a Notice of Federal Tax Lien after:

  • Assessing liability
  • Notice and Demand for Payment is sent to you- it informs you how much you owe in taxes
  • You don’t pay the tax debt in full within 10 days after receiving the IRS notification

Once the above requirements are met, a tax lien is initiated for the tax debt amount. The filing of notice of a lien is public notification to your creditors that the IRS has a claim against all your property, including property you obtain after the lien is filed. The notice plays a critical role when courts establish priority in certain circumstances, like bankruptcy court proceedings or real estate sales.

Basically, the federal tax lien attaches your entire property (i.e. car or home) and your entire rights to property (i.e. Accounts receivable, if you are a business).

Consequences of Tax Liens

The immediate consequence of a tax lien filing is the damage to your credit rating. It will be practically impossible to get a mortgage loan, car loan, a new credit card, or sign a lease. Hence, it becomes critical that you work to resolve your tax liability rapidly, before a lien is filed.

Releasing the Tax Lien

A Release of the Notice of Federal Tax Lien is issued:

  • Within 30 days after of satisfying federal taxes due, paying the debt or having it adjusted
  • Within 30 days after receiving a bond you submit, this guarantees debt repayment.

Additionally, all fees a state or jurisdiction charges to file and release the federal tax lien are added to the debt you owe.

Tax Debt Public Record

The lien amount is a matter of public record until the debt owed is paid in full, inclusive of additions and accruals.

Appealing the Lien Filing

There is an opportunity for you to appeal your filing. You can request an IRS manager to review your tax case, and ask a Collection Due Process hearing with the Office of Appeals by filing it with the office listed on your lien notice to request for a hearing. The appeal request must be filed by the date reflected on your notice.

At the end of your hearing, the IRS Office of Appeals will issue a final determination. That determination could support the continuation of the federal tax lien or a release withdrawal. If the ruling is not to your liking, you have a 30-day period starting from the date of determination, to request a judicial review in a jurisdictional court. You can avoid challenging dealings with the IRS by seeking tax help from a tax advisor who has expert experience in getting tax resolution with the IRS on behalf of his clients.

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By: David Schwartz
Date: 6/25/2011 2:56:13 PM
The IRS has a scam going, and no U.S. politician is brave enough to do anything about it. Why does the tax code limit the capital loss deduction to only $3000 a year? If we have $50,000 or $100,000 in capital gains in any given calendar year, we must pay income tax on the entire amount of the gain! When was this yearly $3000 capital loss deeduction limit rule written? Back in the 1920's?