Federal tax liens are more damaging than other liens because the IRS is not required to file a lawsuit against the taxpayer beforehand. If they have sent sufficient notices to the taxpayer regarding the payment of the debt, they can proceed to the placement of a lien. A lien ensures that the IRS will be paid the debt, in most cases before other creditors.
What Can Be Placed Under a Lien?
The IRS places a lien on all the properties, vehicles, and assets of a taxpayer. A lien can be attached to a taxpayer’s assets, future assets acquired during the lien, business property, and rights to business property. Essentially, whatever a taxpayer owns falls under the lien. Even in bankruptcy filings, the lien may continue after the taxpayer has filed.
A tax lien is valid for a 10-year period. If the IRS is unable to collect the tax debt within 10 years, they cannot then sell the property or assets of the taxpayer to pay for the debt. A lien automatically expires after 10 years. However, in most cases, the IRS does not wait that long to collect tax debt if it sees that selling a property or asset can satisfy the debt partially or fully.
Adverse Impacts of a Lien
After placing a lien, the IRS makes the details public to alert creditors of its claim on the taxpayer’s property. A record of the tax lien shows on the taxpayer’s credit report, and can remain on the report for up to seven years, even after the debt has been satisfied. These actions damage the taxpayer’s ability to obtain new lines of credit, hurt their reputation, and can adversely impact employment prospects.
A lien can be removed by paying the full tax debt in a single payment, or through a discharge, subordination or withdrawal. Using professional help is advisable if the taxpayer cannot pay the entire debt. In such a situation, negotiations with the IRS may become necessary.