Are you trying to sell your home? You made all the small fixes, you cleaned it to make it look great, and you spoke to a real estate agent. The agent lists the house, finds a qualified buyer, and you get a price that you never thought you would get. The buyer does a title search and they find out you have a tax lien on that house. The deal falls through and you are extremely upset because that tax lien has prevented you from selling the house.

What is a Tax Lien?

A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The government's interest in all of your property, including real land, personal property, and financial assets, is protected by the lien.

What is the Tax Lien Process?

The IRS may impose a tax lien if you owe back taxes and do not pay them. Most of the time, you only get a tax lien if you owe more than $10,000 in unpaid taxes, but there are some exceptions.

• The IRS must first assess your tax liability before issuing a tax lien. Either the taxpayer must file a return or the IRS must file a substitute return.
• The IRS will send you a demand letter with a 30-day deadline to respond.
• The taxpayer refuses to pay the debt or finds another way to pay it.

Once the IRS meets these requirements, they can file a tax lien with a local county recorder of deeds or the Secretary of State.

Property Tax Liens

A federal tax lien will be attached to all of your assets, as well as any assets you acquire in the future while the lien is active. The wording on the notice of federal tax lien is intentionally ambiguous to guarantee that the lien encompasses anything of value that you own. Although there is no complete list of what the lien can cover, the following are some of the most typical assets covered by the lien.

• Accounts receivable
• Cars, trucks, motorcycles, & any other mode of transportation
• Future homes purchased while the lien is active
• Homes, including vacation and rental homes
• Investment income
• Jewelry and other personal effects that have value.
• Securities, such as stocks, bonds, mutual funds, and any other type of security.

How Does an IRS Tax Lien Work?

Your creditors are alerted when the IRS issues a tax lien. The IRS' claim to your assets does not trump your creditor's claim to your assets on secured loans. If you have a car loan, for example, your lender gets what is owed to them on the car, but the IRS gets any remaining value.

The tax lien, however, takes precedence over any unsecured debt, such as credit cards. For example, if you filed for bankruptcy and had to sell your assets to pay off your debts, the secured creditor would be paid first, then the IRS, and then the rest of your creditors.

Effects of the IRS Tax Lien

A tax lien is not good news for your creditors. Your creditors will begin to view you as a danger once they receive notification of your tax lien, and they will be concerned that you will not pay your obligations. As a result, your interest rate may be raised. Your credit limit may be reduced if you have credit cards or lines of credit.

How to Find out if You Have a Tax Lien?

The IRS is required to send a letter before issuing a tax lien, but if you haven't received one, there are alternative ways to find out if you have a tax lien. You can contact the Internal Revenue Service directly. The centralized lien department can be reached at 1-800-913-6050. Expect long lines and have a copy of your most recent tax return to prove your identification.

You can also contact the county clerk and recorder's office to check for liens. Keep in mind that the IRS has most likely filed a lien in the county where you most recently resided. If you've recently moved, look in the county where you used to live. Search for "county recorder [your county]" to locate contact details for your area.

Appealing a Tax Lien

You have the right to appeal a tax lien if you disagree with it. There are several options for appealing a tax lien, and the best one depends on when the lien was issued and why you're appealing. You should appeal if you have already paid your tax obligation or if the IRS has made a mistake.

When the IRS files a Notice of Federal Tax Lien for each tax and period that you owe, federal law compels the IRS to notify you. With appeals, you will have 30 days to request a hearing. The lien notice will include the date on which the 30-day period will end. Appealing can be done in two ways.

1. Collection Due Process (CDP): This is generally the slower method of appeal, but gives a bit more flexibility if you don’t agree with the outcome. This type of appeal can be contested in the United States Tax Court.
2. Collection Appeals Program (CAP): This appeal method is generally quicker than using the CDP option. With a CAP hearing, it is available before or after a notice of federal tax lien is filed. With this type of appeal, you cannot appeal to the tax court. The decision in a CAP hearing is binding on the taxpayer and the IRS.

What are the mechanisms that can lead to the release of an IRS tax lien?

1. Automatic payment agreement via a streamlined installment arrangement
2. Bankruptcy
3. Execution of a collateralization agreement
4. Expiration of the statute of limitations
5. Full payment of the tax liability
6. The purchase of a surety bond
7. Successful completion of an Offer in Compromise

Will the IRS issue a Withdrawal of Lien if I enter into a Payment Plan?

Yes, the IRS will release the lien in the following circumstances:

• You owe $25,000 or less.
• You sign a Direct Debit Installment Agreement, which says that you have to pay back what you owe within 60 months or before the Collection Statute runs out, whichever comes first.
• You are in full compliance with other filing and payment requirements.
• You have made three consecutive direct debit payments.
• You can’t have defaulted on your current, or any previous, direct debit installment agreement.

Lien vs. Levy

A tax lien is not the same as a levy. When you don't pay your back taxes, a lien secures the government's claim on your property. A levy is when your property is taken to pay off a tax debt. If you don't pay your taxes or make plans to pay them, the IRS can take most of the real and personal property you own or have a stake in and sell it at auction.

How long does it take to release an IRS tax lien?

Once a tax debt is satisfied, the IRS will release the tax lien within 30 days.