How a Tax Lien Works

Tax Lien pic

Tax Lien
Image: investopedia.com

Since 1986, Michael J. Smeriglio has owned and operated a private accountancy practice in Cos Cob, Connecticut. Michael J. Smeriglio draws on extensive experience in helping clients understand their taxes.

When an individual fails to pay due tax to the Internal Revenue Service (IRS), that entity may file a tax lien against the debtor’s property. This can only occur after the government has assessed the amount owed and sent a bill with a specified due date. If the taxpayer does not remit the total amount before the due date, the IRS can officially file a Notice of Federal Tax Lien.

The lien notice indicates that the IRS has first claim to the person’s property until the debt is paid. This automatically increases the taxpayer’s risk as a recipient for credit and can make it extremely difficult for him or her to secure a loan or other new credit.

An IRS lien must remain on the individual’s record until the debt is paid or a qualified installment agreement is in place. Such agreements are available to taxpayers who owe $25,000 or less and are fully compliant with other filing requirements, and who have not defaulted on previous direct debit agreements. The plan itself must pay off the debt within 60 days or before the expiration of the collection statute, whichever occurs first.

A tax lien automatically disappears after the debt has passed the specified collection statute. It may also be eligible for release if the IRS did not follow proper procedures for issuing the lien, provided that the taxpayer can secure evidence to that end.

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