The IRS may file a tax lien against a taxpayer who owes back taxes and has not resolved their tax debt. However, the IRS does not automatically file a tax lien in every case where taxes are owed. There are certain requirements and procedures the IRS must follow before placing a lien against a taxpayer’s assets.
What is a tax lien?
A federal tax lien is a legal claim against a taxpayer’s current and future assets, including property, cars, boats, and other valuables. The lien gives the IRS the legal right to seize and sell a taxpayer’s property to satisfy their tax debt if they cannot pay it through other means.
When the IRS files a tax lien, it becomes public record and damages the taxpayer’s credit score. It also allows the IRS to establish its right to assets ahead of other creditors. The presence of a tax lien can make it difficult to get a loan or mortgage.
When does the IRS file a tax lien?
The IRS usually files a tax lien only after the following steps:
- The taxpayer has an outstanding tax debt
- The IRS has assessed the amount owed
- The IRS has sent the taxpayer notices requesting payment
- The taxpayer has neglected or refused to pay the tax debt for 10 days after the notice of intent to levy was issued
This means a tax lien is not the IRS’s initial action in collecting unpaid taxes. They pursue other collection methods first, such as wage garnishment or levying bank accounts. The IRS will resort to a lien only after repeated attempts to collect have failed.
When does the IRS not file a tax lien?
There are some situations where the IRS may delay or refrain from filing a tax lien:
- Installment agreements: If the taxpayer sets up an approved installment agreement to pay the tax debt over time, the IRS will usually not file a lien.
- Pending appeals: If the taxpayer has appealed their tax liability and the appeal is pending, the IRS postpones filing a lien until the appeal’s outcome.
- Financial hardship: Taxpayers can request a lien withdrawal or subordination due to financial hardship. This may prevent a lien filing if approved.
- Pending offers in compromise: The IRS does not file a lien while considering the taxpayer’s offer in compromise to settle their tax debt for less than owed.
The IRS also has some discretion not to file a lien if they determine the taxpayer will pay in the future or if the taxpayer does not have sufficient assets for the lien to attach to.
How long can the IRS wait to file a tax lien?
Generally, there is no statute of limitations on the IRS’s ability to file a tax lien. As long as the tax debt remains legally collectible, the IRS can file a lien at any time.
The IRS is authorized to collect unpaid taxes for 10 years from the date of assessment. They typically file liens earlier in the collection process to secure their right to the taxpayer’s assets. However, in some cases, the IRS can continue pursuing collection even beyond 10 years.
Can you remove an IRS tax lien?
It is possible to get a tax lien removed, but it can be difficult. Here are some potential options:
- Pay off the tax debt – Fully paying the amount owed will prompt the IRS to release the lien.
- Prove financial hardship – Taxpayers can request removal if the lien is causing undue financial hardship.
- Request lien subordination – The IRS may agree to make other creditors priority over the tax lien.
- Prove IRS error – If the lien was filed erroneously, prove mistake to the IRS to get it removed.
- Wait for lien expiration – Tax liens expire after 10 years if the statute of limitations runs out and debt is uncollected.
The process of getting a tax lien removed can take a significant amount of time and documentation. Many taxpayers need help from a tax professional to navigate the process and make a compelling case to the IRS.
How to prevent an IRS tax lien
The best way to prevent a tax lien is by staying on top of your federal tax obligations in the first place. Here are some tips:
- File and pay taxes in full and on time every year.
- Request an extension if more time is needed to file or pay taxes.
- Respond promptly to all letters from the IRS.
- Don’t ignore problems – address tax debts quickly.
- Enter into an installment agreement if you can’t immediately pay in full.
- Explore options like offers in compromise or penalty abatement if warranted.
- Get professional help as soon as tax problems develop.
While the IRS can file a tax lien at any time with little warning, staying compliant and proactive makes this much less likely to occur.
Conclusion
The IRS does not automatically file tax liens on all unpaid tax debts, but will consider it as a severity of collections increase. Taxpayers generally have opportunities to resolve their tax obligations before a lien is filed. However, if the debt remains unaddressed, the IRS will use liens to secure their right to seize assets in the future if necessary. Preventing liens requires staying compliant with filing and payment obligations, addressing IRS notices promptly, and utilizing resolution options as soon as tax problems arise.
| Tax Lien Situation | Will a Lien be Filed? |
|---|---|
| Taxpayer with an installment agreement | No |
| Taxpayer appealing tax liability | No |
| Taxpayer requesting lien withdrawal due to hardship | Maybe |
| Taxpayer with pending offer in compromise | No |
| Taxpayer who owes back taxes but is paying them off slowly | Maybe |
| Taxpayer who did not respond to IRS collection notices | Yes |
Key Takeaways
- The IRS files tax liens to secure rights to taxpayers’ property and assets for unpaid tax debts.
- Liens are not filed right away – the IRS pursues other collection actions first.
- Taxpayers have opportunities to prevent liens by resolving debts promptly.
- An IRS tax lien can be removed through payment, financial hardship, IRS error, or other reasons.
- Staying compliant on filing and payment is the best protection against tax liens.