What Is a Federal Tax Lien?
A federal tax lien is the government's legal claim against all your property when you do not pay a tax debt after the IRS assesses it and demands payment. The IRS may file a public Notice of Federal Tax Lien to alert creditors. A lien is not a seizure; that is a levy. The lien is released within 30 days after the debt is paid, and in some cases it can be withdrawn or discharged.
A tax lien can make it hard to sell or refinance property, but it is also one of the more fixable IRS problems.
How a lien arises
Under 26 U.S.C. 6321, if you neglect or refuse to pay a tax after demand, a lien arises in favor of the US on all your property and rights to property, including real estate, vehicles and financial assets, and property acquired later.
The Notice of Federal Tax Lien
The IRS may file a public notice with the county or state, which gives other creditors notice of the government's claim (IRS). Since 2018, the major credit bureaus have not included tax liens on credit reports, but the notice remains a public record that lenders can find.
Lien vs. levy
- Lien: a claim securing the debt.
- Levy: the actual seizure of property, such as wages, bank accounts or other assets, after notice and an opportunity for a hearing.
Ways to resolve a lien
| Option | What it does |
|---|---|
| Release | The IRS releases the lien within 30 days after the tax is paid in full, the debt becomes legally unenforceable, or a bond is accepted (26 U.S.C. 6325) |
| Withdrawal | Removes the public notice as if it had not been filed; available in certain cases, such as after entering a direct debit installment agreement for qualifying balances (26 U.S.C. 6323(j); IRS) |
| Discharge | Removes the lien from a specific property, often to allow a sale |
| Subordination | Lets another creditor move ahead of the IRS, often to allow a refinance |
Appeal rights
You can request a Collection Due Process hearing within the deadline stated in the lien notice and raise options like installment agreements or offers in compromise.
Selling a home with a lien
The lien is usually paid from sale proceeds at closing, or the IRS may issue a certificate of discharge. Title companies will find the lien. See clouds on title.
Expiration
When the 10-year collection period ends, the lien generally becomes unenforceable. See how long the IRS can collect.
State tax liens
States file their own liens with similar effects.
A tax lawyer can request withdrawal, discharge or subordination and negotiate a resolution.
Sources
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This article is general legal information, not legal advice, and reading it does not create an attorney-client relationship. Laws differ by state and change over time; talk to a licensed attorney in your state about your situation.