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What Does a Federal Tax Lien Do?

What Does a Federal Tax Lien Do?

A federal tax lien doesn’t immediately take any of your property, which may make it seem less intimidating than other IRS collection actions. However, the federal tax lien has many attributes that make it a powerful collection method:

  • It is a blanket lien, meaning it covers everything you own and all of your current and future rights to property.
  • It can survive the bankruptcy process. Some types of tax debt can’t be discharged in bankruptcy because of the federal tax lien.
  • A tax lien can hurt your credit and make it harder to sell your home or get a loan.

Notice of Federal Tax Lien

There is an important difference between the federal tax lien and Notice of Federal Tax Lien (NFTL). The lien is there automatically, as soon as you fail to make a payment by the required deadline. It’s invisible—the IRS isn’t required to notify you of the lien, and no one else will know about it.

The NFTL is a notice to the public. It’s an alert to other creditors and potential creditors, saying “This person owes money to the IRS.”

A creditor then has to consider whether they want to loan you money when you already owe money to the IRS. If you are trying to sell or refinance your home, the NFTL could make it very difficult.

Along with creditors, employers, landlords, and anyone else who runs a credit check on you can see that the NFTL has been filed.

Getting Rid of the Tax Lien

The tax lien must be released if your full balance is paid to the IRS or if it becomes uncollectible (such as when the statute of limitations expires). If neither of those options fit your situation, you’ll have to determine whether to live with the lien or to request a withdrawal, discharge, or subordination.

A withdrawal may be an option if you enter into a Direct Debit Installment Agreement, owe $25,000 or less, and meet certain other requirements.

A lien subordination gives another creditor permission to take a priority position over the tax lien. This can be helpful when attempting to refinance your home.

A lien discharge removes the lien from one specific piece of property, and can be used when trying to sell a home subject to the lien. However, the IRS will only grant a lien subordination or discharge if you give them something in return or if they feel secure with the value of your other property subject to the lien.

The Gartzman Law Firm offers tax lien removal assistance and tax settlement help for both federal and state tax debt. Use our contact form to request a consultation with an Atlanta tax resolution attorney.