A federal tax lien gives the Internal Revenue Service (IRS) a legal claim to a taxpayer’s property as security or payment for a federal tax debt. A Notice of Federal Tax Lien may be filed only after:
- The IRS has assessed a liability
- The IRS has sent a Notice and Demand for Payment – a bill telling how much a taxpayer you owe in back tax debts, and
- The taxpayer neglects or refuses to fully pay the debt within 10 days after notification.
Once these requirements are met, a tax lien is created for the amount of the tax debt. By filing a notice of the tax lien, creditors are publicly notified that the IRS has a claim against a taxpayer’s property, including property acquired after the lien is filed. This notice is used by courts to establish priority in certain situations, such as bankruptcy proceedings or sales of real estate.
The IRS tax lien attaches to all of a taxpayer’s property (such as their house or vehicle) and to all rights to property (such as accounts receivable for businesses). Once a tax lien is filed a taxpayer’s credit rating may be harmed. Taxpayers with a federal tax lien may not be able to get a loan to buy a house or a car, get a new credit card, or sign a lease. Therefore it is important to work with a tax professional to resolve any tax liabilities as quickly as possible, before a tax lien becomes necessary.