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What Does a Federal Tax Lien Do?

What Does a Federal Tax Lien Do?

A tax lien is a legal encumbrance on your property. It doesn’t result in an immediate seizure of your assets, but it can still prevent you from selling your home or getting a loan.

Notice of Federal Tax Lien

The IRS tax lien applies to all of your property as soon as you have delinquent tax debt. However, there won’t be a public record of the lien until the IRS files a Notice of Federal Tax Lien (NFTL).

The NFTL notifies other creditors that the IRS has an interest in your property. If you receive a home equity loan or refinance your mortgage, your new creditors would have a lower priority than the IRS lien interest.

If you sold your home, the new owner would have to take the house subject to the lien. Because a taxpayer can’t get money by selling, refinancing, or borrowing against their home, the NFTL could put you into a tough financial situation.

Avoiding the Lien

In some cases, you can avoid having the NFTL filed altogether. Some installment agreements include a provision stating that the NFTL won’t be filed if you abide by the terms of your agreement.

If the NFTL has already been filed, you have several options for reducing the impact of the lien:

  • You can ask for a lien subordination to refinance or borrow against your home.
  • You can request a lien discharge from a specific piece of property you are trying to sell.
  • You can ask for the NFTL to be entirely withdrawn if you pay off your tax debt, enter into certain types of installment agreements, or have another compelling reason to withdraw the lien.

You will generally have to give the IRS something or “play by their rules” if you want them to grant your request. This could require paying a lump sum towards your tax debt or some other type of arrangement.

You shouldn’t ignore a federal or state tax lien. The next step may be a seizure of your property or a wage garnishment, so take action quickly to resolve your tax problems and contact a tax attorney.

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