Federal Tax Liens

When you file a tax return or the IRS files one for you, the return is processed through one of the IRS Service Centers. After the return is processed, it is assigned an assessment date. This is the date your account balance goes on the IRS books as an account receivable to them. This is also the date the IRS sends you the first notice of the balance due. Ten days after the assessment date, if you have not paid the balance due in full, a statutory lien arises. The statutory lien attaches to all property rights in which you have any interest whatsoever. The assets can be personal property, real property, tangible property or intangible property.

Although the public is not aware of the statutory lien, this lien does establish the priority IRS has in your property rights. However, since this statutory lien is not public knowledge, you may continue to sell and mortgage your assets without the statutory lien affecting the sale or mortgage. The statutory lien also has no effect on your credit history since it is not public knowledge.

In order for the IRS to establish its lien priority over third parties, it must file a Notice of Federal Tax Lien. The Notice of Federal Tax Lien, depending on the state the taxpayer resides in or the business is located in, must be filed in the location dictated by state laws. This is usually in the county recording office or the state capitol, or both. This is the Lien most clients are concerned with in their dealings with the IRS.

Once the Notice of Federal Tax Lien is filed, the public becomes aware you are indebted to the IRS. The filing is picked up by the credit bureaus and is recorded on your credit reports. In all likelihood, you will be unable to rent housing, open a checking account, purchase a home, purchase an automobile or obtain any other type of credit. Although the IRS does have in place a Policy Statement that allows you to purchase assets and finance them as a purchase money mortgage, most lenders will not recognize this Policy Statement. The filing of the lien also has some very serious consequences on businesses.

One of the more common misconceptions associated with the filing of the Notice of Federal Tax Lien concerns property to which it does attach. The filed lien will list the taxpayer’s name and the address last known to the IRS. The IRS Notice of Federal Tax Lien is a general lien which means it attaches to all property of the taxpayer, not to a specific property. Much of the general public and taxpayers as well, assume the filed tax lien has attached to the address listed on the lien. This is not always the case. If the taxpayer owns or is buying the property at that address, the lien does attach to that property. However, if the taxpayer is only renting or sold the property shown on the filed lien, the lien does not attach.

The three most popular situations clients have in requesting additional filing certificates by the IRS in relation to the Notice of Federal Tax Lien are the Lien Release, Lien Discharge and Lien Subordination. Each of these certificates requires an application on behalf of the client or other third party. The IRS will investigate the application and approve or reject the application.

A Lien Release is issued if all periods listed on the Notice of Federal Tax Lien are paid in full, the balances are abated in full or the statue of limitation for collection expires. Many times the IRS fails to release liens when required. Contact Us if a lien filed against you was paid or expired and has not been released; or if you are selling property and need to schedule a lien release at closing.

A Lien Discharge is issued in several situations when the taxpayer’s property is being sold or transferred. If IRS determines there is no equity in the asset; IRS is paid the amount of equity in the property as determined by the IRS; or the taxpayer deposits into an escrow account the amount of equity IRS has determined is in the property; a Lien Discharge will be issued. Contact Us, we can assist with the lien discharge and usually save you money.