When you owe the IRS a tax debt, the IRS has a right, by law, to tie up your assets. In this sense, the definition of assets is anything that you own, whether it is your home or your stamp or gun collection. The law allows the IRS to use a lien to tie up your property. Of course, they don’t literally tie it up, but they let the world know that you owe the IRS some money and that if you sell anything that you own, the IRS has a right to the money paid for it.

The IRS Will Record the Tax Lien

Technically, the IRS has a lien on your assets from the very second that you owe taxes. However, nobody will know about it until the IRS takes formal steps to let the world know that they have a lien. They do this by sending you a letter notifying you that they are going to record a lien in the county recorder’s office in the county where they think you own property. This is usually the county you live in, but they could file in multiple counties if they have information concerning your property’s whereabouts.

Appealing Your Tax Lien

You can appeal the filing of the lien to the IRS Appeals Division if you do so within the time limits stated in the notification letter. Usually, the IRS will go ahead and file the lien so the world will know about it even while you go about appealing the filing.

 Most of the time, appealing the lien filing is a waste of time, but there are a few instances when it would be to your benefit. It would be beneficial for you to talk to a tax lawyer knowledgeable about these kinds of liens to discuss whether an appeal would benefit your particular circumstance. Typically, tax lawyers are more knowledgeable about tax liens than other professionals that deal with tax matters. Tax lien law can be quite complicated and may necessitate a more in-depth knowledge of corporate, business, or real estate law.

Once the lien is filed in your county recorder’s office, it is there for the world to see.

When you try to sell a piece of real estate, either your home or some other property, the title company that will be insuring clear title to the property will find the recorded lien when doing a preliminary title report. They will then hold the money paid into escrow by the purchaser for the sale. That money will not be paid to you. The Title company will send the sales proceeds to the IRS for your tax debt.

Getting Your Tax Lien Released

There are situations in which you could get the IRS to either release the lien in its entirety, subordinate their interest to a new mortgage holder, or remove (discharge) a specific property from the lien. These actions require making formal requests to the IRS under the appropriate tax laws and the IRS regulations.

WARNING:  If you privately sell property with a tax lien on it without taking any action to deal with the lien as stated in the last paragraph, the lien, by law, will follow the property to its new owner who will then have a clouded title.

If the new owner realizes at some future date that there is an IRS tax lien on the property that you sold him without disclosing that fact and without taking steps to remove that property from the lien, you may very well have a lawsuit on your hands.  This situation could cause a legal problem with the title to the property that may not surface until years later. This situation could come back to haunt you when you least expect it.

Tax liens will stay on your record until you pay the tax you owe, in full, or you complete the remedy you have negotiated with the IRS or the ten-year statute of limitations to collect the tax has run.

Tax Liens in Bankruptcy

If you have a tax lien placed on you before you file a Chapter 7 bankruptcy, it will not go away even if the Court discharges the tax. This could have dire consequences even a long time after you finish your bankruptcy.

Dealing with tax liens is not a do-it-yourself project.  Even many tax professionals that are accountants or enrolled agents, although they think they know what they need to know, have no knowledge of the dark traps that lurk within the case law and statutes of federal tax lien law. If you have a problem with a federal tax lien, you are well-advised to seek out our help. Contact us now so that we can protect your rights.