Generally, if you owe taxes, penalties and/or interest to the IRS and do not pay it in full within the time specified after the IRS notifies you, you are now faced with a federal tax lien. Taxpayers are typically unaware of the presence of a lien in the earliest stages.
To collect the balance due, the IRS will issue letters and/or notices that, in part, demand full payment of the balance due under threat the debt will become public knowledge by filing a Notice of Federal Tax Lien. If the taxpayer does not pay the balance due in full, (or meet certain criteria to resolve the balance due) and the IRS has met all of its procedural requirements, the IRS may file a Notice of Federal Tax Lien. Now, your balance due becomes public knowledge. The IRS has filed a tax lien…now what?
A Notice of Federal Tax Lien is a public document that is filed with the County Recorder’s Office and/or the Secretary of State. A taxpayer may first learn that a Notice of Federal Tax Lien is filed when he or she begins receiving telephone calls from salespersons offering to magically resolve their tax problem. Beware of anyone who guarantees specific outcomes. Also note that the caller is likely acting unethically by calling you directly to solicit business.
The negative effects of a Notice of Federal Tax Lien may be immediate. Your balance due with the IRS has become public knowledge, the lien attaches to all your property, and your creditworthiness is likely damaged. Your ability to purchase, sell, or refinance property is likely limited. If a Notice of Federal Tax Lien is filed and you later file for bankruptcy, your tax debt, along with your Notice of Federal Tax Lien, may continue after the bankruptcy has concluded.
A Notice of Federal Tax Lien, once filed, will typically remain in effect until the associated debt is paid in full. However, if you are not currently able to pay the balance due in full and are attempting to reduce the negative effects of the Notice of Federal Tax Lien, the IRS may consider withdrawing or subordinating it. If the Notice of Federal Tax Lien is subordinated, it may allow a taxpayer to refinance. Furthermore, the IRS will also consider discharging certain property from the Notice of Federal Tax Lien to allow the taxpayer to sell.