The Federal Tax Lien And You
Federal tax liens are one of the ways by which the Internal Revenue Service (IRS) collects tax debt. A tax lien limits the tax payer's legal right to his or her property. A federal tax lien is filed by the IRS when a tax payer accumulates back taxes and then fails to pay the dues after reminders are sent by the IRS. The tax lien can arise due to non payment of any kind of tax like income tax or property tax. After informing the tax payer about the accumulated back taxes and waiting for the debt to be cleared, the IRS files a Notice of Federal Tax Lien when no action is forthcoming from the tax payer. Through the Notice it makes a public announcement that the tax payer has defaulted on payment of taxes. However this is not a mandatory process. The lien may be a "secret lien" and will exist in the eyes of the law even if a public notice has not been filed. By filing a Notice of Federal Tax Lien however the IRS ensures that it has prior claim to the tax payer's property in the event that the property is sold. A federal tax lien can be filed against both real and personal property. Real property refers to real estate while personal property refers to anything else that the person owns. In most states the lien is filed with the county clerk of the area where the property is located. A federal tax lien usually becomes invalid after 10 years of filing unless the IRS has taken some action in the interim period. The IRS has the option of re-filing the Notice. If the Notice is re-filed a month after the 10 year period has ended it is considered a late filing. A late filing implies that the legal effect of the earlier filing is nullified but the validity of the lien is not affected. A federal tax lien can be held by the IRS until the tax debt is paid off. Usually the existence of a federal tax lien on the property does not affect the homeowner unless there are plans to sell it. However it can affect a person's credit rating depending on how large the outstanding debt is. The tax payer may find it difficult to get loans approved or acquire new credit cards and in some cases banks may be forced to send the tax payer's money to the IRS directly. The federal tax lien can be removed by paying off the debt. Alternatively, a settlement can be made with the IRS. The settlement could be to pay less than the outstanding dues but in a lump sum or it could be an agreement to pay the debt in installments. http://www.unclefed.com/AuthorsRow/BJHaynes/liens1.html http://www.tax-tiger.com/federal-tax-liens.html |
