Empire Tax Solutions

All You Need to Know About Federal Tax Liens

A federal tax lien affects you in many ways. It directly impacts your ability to get credit, right to business property and account receivables, and all future assets acquired even during the lien. In fact, in some cases, the Notice of Federal Tax Lien continues even after you’ve filed for bankruptcy.

But what really is a federal tax lien? Read on to learn more about how it affects you and your property.

What Are Federal Tax Liens?

According to Investopedia, a federal tax lien is the federal government’s right to withhold your personal property if you cannot fulfill your tax obligations. The IRS can put any asset owned by you on a federal tax lien. This may also include the assets acquired during the lien itself. A tax lien is different from a tax levy, which refers to the act of seizing your property.

To initiate the process, the IRS first sends you a ‘Notice of Federal Tax Lien’ to demand the payment and alert you that the government has a right to your property. If they still go unpaid, the next step is to place the lien on the property. The lien could be placed on your personal property, financial assets, and real estate. The IRS’s initial notice will assess your liability in detail and state how much you owe.

Federal tax lien documents

How to Get Rid Of a Tax Lien?

The best way to get rid of the lien is to pay the tax debt in full as soon as possible. The IRS usually requires you to pay the entire tax debt within 30 days before releasing the lien. However, if this isn’t a viable option, here’s what else you can do:

A. Discharge of Property

The term ‘discharge’ means the lien will be removed from your property. This only works if you fulfill the IRS’s eligibility criteria. This option usually works if:

  • You sell the property and pay using the sales proceeds.
  • You satisfy your liability.
  • You furnish the lien against a bond.
  • The property’s value doubles the lien amount.

B. Subordination

This option doesn’t necessarily remove the lien. Instead, it allows other creditors to move ahead of the IRS in this regard. This way, you can obtain a refinanced loan against your existing debt obligations. You can also obtain a mortgage.

C. Withdrawal

This option completely removes the notice of lien only to the extent that the IRS no longer competes with other creditors from your property. However, you’ll still be liable to pay the due amount. You’ll only be eligible for the option if you’ve been compliant with the past three years’ tax requirements. This includes filing your individual returns, information returns, and business returns. You can go the complete list of the criteria on the IRS’s website.

Navigating your way through the tax lien process could be quite a chore if you don’t have the right help. Empire Tax Solutions will make the ordeal easy for you by offering tax resolution and tax settlement services. Learn more here.