What Is A Tax Lien?
Tax liens generally fall into two categories, real estate or IRS taxes. Real Estate – When you don’t pay legally assessed property taxes, the taxing entity has the legal right to file a tax lien against the property to recover the taxes and penalties should you sell the property. Certain states allow the tax lien to become a first lien on the property, and force sell the property at auction to recover taxes and penalties.
IRS – Liens give the IRS a legal claim to your property as security or payment for your tax debt. A Notice of Federal Tax Lien may be filed only after:
- Tax liability is assessed;
- You have been sent a Notice and Demand for Payment – a bill that tells you how much you owe in taxes; and
- You neglect or refuse to fully pay the debt within 10 days after you are notified by the IRS about it.
Once these requirements are met, a lien is created for the amount of your tax debt. By filing notice of this lien, your creditors are publicly notified that the IRS has a claim against all your property, including property you acquire after the lien is filed. This notice is used by courts to establish priority in certain situations, such as bankruptcy proceedings or sales of real estate. At this point you no longer have clean credit.
The lien attaches to all your property (such as your house or car) and to all your rights to property (such as your accounts receivable, if you are a business).
Active tax liens may be listed on your credit reports. You may not be able to get a loan to buy a house or a car, get a new credit card, or sign a lease. Therefore it is important that you work to resolve your tax liability as quickly as possible, before lien filing becomes necessary. Refer to IRS Publication 1660 (PDF), Collection Appeal Rights, for more information.
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