A tax lien is the government’s legal claim against your property when you do not pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property, and financial assets. Under Internal Revenue Code (IRC) § 6321, if any person liable to pay any tax neglects or refuses to pay the same after demand, the total amount shall be a lien in favor of the United States upon all property and rights to property belonging to you.

According to IRS guidelines and administrative procedures, a tax lien is generally filed when the taxpayer’s outstanding balance exceeds $10,000. However, the IRS is not bound to the $10,000 threshold; in certain cases, the IRS will file a lien for smaller balances due.

Liens can attach to property owned by you, your spouse, or your company after a taxing authority takes the following steps:

1) Assesses your balance due: The IRS assesses the tax liability.

2) Sends you a bill that explains how much you owe: This is known as a Notice and Demand for Payment. If you neglect or refuse to fully pay the debt in time, the lien becomes effective.

A lien can often prevent you from opening a checking account in certain jurisdictions or borrowing against any assets, like your home. Further, the lien becomes public record, and it can negatively impact people in certain professions. The IRS files a public document, called the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to a taxpayer’s property. Since the lien becomes a public record, anyone can discover it.

However, liens can be withdrawn, subordinated, or discharged in some cases.

• Withdrawal: The IRS may withdraw a Notice of Federal Tax Lien if specific criteria exist:
  • The notice was filed prematurely or not according to IRS procedures,
  • A Streamlined Direct Debit Installment Agreement is established and other requirements are met,
  • If withdrawal will expedite collecting the tax, or
  • If withdrawal would be in the taxpayer’s best interest and the best interest of the government.
    
    
• Subordination: Subordination is the process that can make a federal tax lien secondary to another encumbrance with regard to specific property. This can be beneficial if you need to obtain a loan or mortgage.
  
  
• Discharge: If you are transferring ownership of property subject to a federal tax lien, you may apply for a Certificate of Discharge. This discharges the property from the federal tax lien, allowing the transfer to proceed.

Please reach out to Sunshine Tax Relief to learn more about your options and how to manage a tax lien effectively.