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When the IRS puts a tax lien on property

On Behalf of | Oct 19, 2022 | Internal Revenue Service, Tax Liens

Tax liens put your assets in jeopardy. Removing them requires working alongside the Internal Revenue Service and clearing any debt you have with them.

Let’s take a look at the tax lien, what happens when you have one, and your options for getting rid of it.

Overview of a tax lien

The IRS may place a tax lien on real estate or other assets if a taxpayer is past due on their debt. The agency may then sell the liens to investors. Investor funds pay off the tax debt and give them the legal right to collect their investment, as well as interest, from property owners.

What else happens

Besides the lien, other processes can result from owing and not paying your tax debt.

  • If a federal tax lien is not taken care of, a tax levy is on the horizon. That’s the seizure of property and assets. Levies entail garnishing wages, as well as seizing bank accounts.
  • Expect your credit reputation to go way down. Tax liens do not appear on your credit report, but the IRS still has the power to file a public notice. The declaration lets creditors know the government has an interest in your assets. With this information, expect everyone from credit card companies to car financiers to think twice about your creditworthiness.
  • Tax liens show up during title searches. If your property has equity and you try to refinance or sell, chances are a portion, if not all of the equity, to be used to pay off your tax debt before you can close the deal.
  • The agency funnels overdue taxpayers into its ACS. The automated collection system channels you through its call center which can mean hours on hold. Other debt holders get turned over to a revenue officer. That can lead to in-person visits.
  • Once the IRS has its tax lien, its next step may be a Notice of Intent to Levy.

Dealing with a tax lien

The only way to remove a tax lien is to:

  • Pay the tax bill
  • Get on a payment plan
  • Come to a settlement payoff
  • File an appeal
  • File for bankruptcy

Knowing you owe and refusing to deal with the matter only increases your liability. Do not ignore or underestimate any communication the IRS sends your way. You must be proactive. Find ways to work with the IRS and avoid severe penalties and hits to your reputation.

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