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IRS Liens

By filing a Notice of Federal Tax Lien (Form 668Y), the government makes a legal claim to a taxpayer’s property as security or payment for a tax debt, serving as public notice to other creditors that the government has a claim against your property.

Tax Tip – A lien can affect a taxpayer’s credit rating, so it is critical to arrange the payment of tax debt as quickly as possible.

If there is a IRS tax lien on your home, you must satisfy the lien before you can sell or refinance your home.  If you have equity in your property, the tax lien is often paid out of the sales proceeds at the time of closing.

Tax lien grunge sign or stamp
Tax Tip – If the home is being sold for less than the lien amount, the taxpayer can request the IRS discharge the lien to allow for the completion of the sale or ask that the lien be made secondary to the lending institution’s lien to allow for mortgage refinancing or restructuring.

You need to be taking care of your tax obligations. If you don’t, you could end up with a lien being placed against your property. But what is a tax lien, and how does it impact you?

What is a Tax Lien?

A tax lien is a legal claim which the debtor makes against your property. This entitles them to a part of that property. There are many things a tax lien can be placed against. For example, you might have the lien placed against your house. In other cases, you might have it placed against business assets.

Before the IRS can place a tax lien against your property, they will need to notify you that you have incurred a tax debt. This is known as a Notice and Demand of Payment. In most cases, a date will be attached to this document. If you don’t make payment by this date, they will take out a lien.

How Does it Affect You?

Miniature wooden house and the inscription " Debt ". Real estate
There are many ways that a tax lien might impact you. First, it can reduce your ability to get a loan in the future. Often, liens will appear in your credit report. This can make most lenders unwilling to give you money. It can also result in you having to pay higher interest rates on any funding that you do manage to receive.

In other cases, a tax lien can make it harder for you to sell a property, adding an extra complication that you need to work through. In some cases, the lien will be paid through the proceeds of the sale.

If you don’t make enough to fully pay the debt, you might be able to ask the IRS to discharge the lien. This will ensure that the sale of the property can go ahead. Because of the lien, it can make refinancing the property very difficult.

Another potential challenge is the steps that you will need to go through to discharge the lien. In some cases, you might get placed onto the automated collection service, which can result in long wait times before you will be able to talk to an operator. This can be very frustrating.

Finally, one of the most serious complications of a tax lien is that, if you don’t make any payments, it can turn into a tax levy. This is where the IRS can repossess your property to pay the debt. In most cases, the IRS is entitled to claim any property that you own.

How Can You Get it Removed?

To get rid of the lien, before it turns into a levy, there are a few steps that you can take. Often, one of the best options is to pay back the debt that you owe. If you have the money, you can make the payment in full. However, for most people, this isn’t an option. If this is the case, you can discuss a payment plan with the IRS. In most cases, after three consecutive payments, you might be able to get them to remove the lien. However, you’ll still need to continue to pay down the debt, plus interest, or they might decide to reinstate the lien.

In some cases, though, you might want to appeal the lien decision. In this case, it will go to the Office of Appeals, where you will be able to argue your case and get the decision reviewed. If you win, the lien will be removed.

Finally, you might not be able to make any payments at all or have too many debts to pay them every one. In this case, you can file for bankruptcy. This can help you clear a lot of your debts and might allow you to get rid of the government debt. However, this process can take a long time and will come with various obligations. For example, you might be forced to sell some assets. For this reason, you should talk with a lawyer to decide if this is the right option for you.

Facing a tax lien can be a very unnerving situation, especially if you are unsure about whether you will be able to pay the debt back. Though you have various ways of getting the lien removed, you should evaluate your options and act quickly. You don’t want to allow the lien to turn into a levy, which can cause the government to repossess your assets. If you want to know more, feel free to get in touch with our team today and we’d be happy to discuss.