Tax Liens 101: What Are They & How To Resolve Them

April 24, 2018
Tax Liens 101: What Are They & How To Resolve Them

A lot can happen when you don’t render unto Uncle Sam what is his. Besides garnishing wages or taking your tax refund, the government also has the ability to place liens against your property and assets.

The IRS exists to collect money for the government. To that end, it will publicly declare ownership, a preamble to that property’s eventual seizure and sale, in order to collect on what its owed.

The IRS describes it thusly:

“A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets.” – Understanding a Federal Tax Lien, IRS.com

How Do Liens Work?

The government sends you a “Notice and Demand for Payment.” If you ignore it, the IRS will send a second and final notice. After that, it issues a “Notice of Federal Tax Lien,” which publicizes the lien to creditors, advising them that they have a rightful claim to your property. If you ignore the debt long enough, the government can move to seize your property to pay off the debt.

What Property Can the Government Seize?

It’s important to understand the gravity of a tax lien. If you don’t pay, the government can and will take and sell any assets you have that can pay off your debt. This includes:

Homes, land, rental properties, etc.

Cars, jewelry, art, furniture, etc.

Business accounts and business property

Money that is in bank accounts, including retirement

How Do I Remove an IRS Lien from my credit report?

To resolve a lien, simply pay off the debt. The process of paying a federal tax lien (to say nothing of the effort it takes to come up with money) is pretty easy. Just visit the IRS website and select a payment method, to include cash, check, money order, wire transfer, e-file, or the Electronic Federal Tax Payment System.

The IRS’ Publication 594, The IRS Collection Process, is a great resource for anyone curious about how to deal with a federal tax lien. Sometimes paying off a debt isn’t that simple. The IRS understands better than anyone that money doesn’t grow on trees, which is why the government offers a multitude of options for you to resolve your debts. Remember, the goal of the IRS is to get paid. The more willingness you show in helping them achieve that goal the better.

What Are the Financial Costs of Liens?

Having a tax lien on your Credit Report can make it extremely difficult to finance a vehicle or rent an apartment. If you haven’t taken any steps to resolve the issue,it’s almost impossible to get approved for a mortgage with federal debt on your record. Liens can also negatively affect your credit score, which can make for higher interest rates on credit cards or other small loans. Considering how many options are available to resolve a federal tax lien, it is not worth the hit on your credit to ignore a lien.

Are Non-Federal Liens Different?

Yes, very. While the IRS can be a pain to deal with, they’re actually very responsive and quick to remove a lien from your Credit Report once you’ve taken the necessary steps to resolve the debt. Not so in the private sector. Individual debts, such as for medical bills, unpaid rent, or private utilities can be sent to collections without receiving multiple notices, and they can remain on your Credit Report long after you’ve resolved the issue. To address non-IRS liens, you have to call the credit reporting agencies specifically to request that they remove liens. Be prepared to show documentation, and be patient, because there is no law mandating how quickly they have to move to address your request.

Experian (888)397-3742

TransUnion (800) 916-8800

Equifax (800) 685-1111

We encourage you to give us a call to discuss your specific tax issue and let us not only help brainstorm a plan but also negotiate on your behalf, to get the best deal, a reasonable payment plan, and a path toward financial freedom.