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Understanding tax liens and what to do about them

On Behalf of | Dec 21, 2020 | Tax Liens

A tax lien certainly can be a thorn in one’s side. Either the federal or a state government can issue a tax lien. In some cases, even a more local authority can, as well. In short, a tax lien is a legal claim against your property when there is at least one type of tax debt.

These types of tax debt can include:

  • Federal income tax
  • State income tax
  • Property tax

A tax lien may be placed upon:

  • Real estate
  • Financial assets such as your bank account(s)
  • Other personal property such as a vehicle, or contents of a safe deposit box
  • A garnish of your wages

What is the process of issuing a tax lien?

A tax lien can be issues against any individual who has failed to pay appropriate taxes. This does not occur overnight. It comes when the IRS, a state income tax agency, or county property tax agency has continually tried to collect past due taxes. This can also occur when one fails to provide proper tax returns. Other times a return is filed, but proper tax charges have not been paid.

The IRS, in particular, may be patient working with individuals to create a payment plan. But if an agent receives no response from the tax debtor, more drastic measures occur. The collecting agency will send out repeated reminders of past due payments. Next, a notice of a possible tax lien will arrive; then a notice of intent to levy. You will receive at least one more final notice of intent along with a notice of your right to a hearing. 

When in place, a levy may seize finances from any of your bank accounts up to the amount owed including penalties. It may also prevent you from accessing your safe deposit box or from selling any real estate or other financial assets, such as a car. It can also attach itself to any businesses you may own.

How to deal with a tax lien

The easiest way to deal with a lien is, of course, to pay the amount due. That may not be possible due to a lack of finances which may have caused the problem in the first place. Filing bankruptcy may alleviate some of one’s debts, but it likely will not clear tax liens, especially federal ones. Also, realize that tax liens most often prioritize other debt. Other ways of handling a tax lien include:

  • Develop a payment plan with the tax authority which will include an automatic monthly withdrawal from a bank account, or from garnishing wages until the obligation is met.
  • Discharge of a specific property, or forgiveness of that particular property, as part of the lien.
  • File for tax subordination allowing another lender to take precedence. This can allow for a new loan or mortgage.

Realize that only full payment or a payment plan will remove your tax debt. However, the others allow for ways to work around tax debts temporarily.

Call a tax attorney to aid with tax liens

If you have received notice of potential tax liens, you should call a qualified, experienced tax attorney. This should be done, whenever possible, before a lien being put in place. If you have already acquired a tax lien, you need a tax attorney and quickly. 

After you set up an appointment, collect all your tax materials including return filings. Include all billings and notices from the taxing agency as well as proof of any payments made. Be frank and honest with your attorney. (S)he needs to know exactly what you are dealing with and what you have, or have not, done.

Your attorney may be able to help you reach an agreement for a lowered amount of past taxes due and/or any penalties while providing a manageable payment plan for you to follow. Take care to choose an attorney who is familiar with the tax authorities and IRS.


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