Today’s accounting moment: Tax Liens

But first some lovely music:

Understanding a Federal 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 lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:

  • Assesses your liability;
  • Sends you a bill that explains how much you owe (Notice and Demand for Payment); and
  • You neglect or refuse to fully pay the debt in time.

The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property.

How to Get Rid of a Lien

Paying your tax debt – in full – is the best way to get rid of a federal tax lien. The IRS releases your lien within 30 days after you have paid your tax debt.

Options: When conditions are in the best interest of both the government and the taxpayer, other options for reducing the impact of a lien exist.

How a Lien Affects You

  • Assets — A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.
  • Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.
  • Business — The lien attaches to all business property and to all rights to business property, including accounts receivable.
  • Bankruptcy — If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.

4 thoughts on “Today’s accounting moment: Tax Liens”

  1. With the economy the way it has been over the last few years I bet the IRS has been busy with liens. I have a friend who had a tax debt of over $300,000. He could not come up with the money to pay the full amount and he negotiated a lessor amount, less than $200,000.,and cleared it up. They never filed a lien in his case,

    1. My experience is the IRS will do everything in their power to work with delinquent taxpayers. Tax liens are reserved for a special class of person that ignores the letters and does nothing to work with the service.

      The Offer in Compromise process is not perpetual in that there is really no excuse for not paying one’s taxes except in certain very limited circumstances. In fact I think there is a rule voiding previously accepted Offers should the taxpayer again become delinquent in their taxes.

      As Mr Mackey would say, “Tax liens are bad, mmkay”.

      1. His situation came about because he took go-zone depreciation on real estate then the market crash and lender forced the sale of the rental property and he had to recover the depreciation as ordinary income.

        1. That would be the type of limited circumstance that would garner sympathy inside IRS collections. Isolated, catastrophic and forced.

          Those that make money and simply don’t pay their taxes, not so much.

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