In short, YES!
So, what is an IRS tax lien? It’s a claim the Federal Government has against both your property and your rights to property for delinquent taxes.
The tax lien is one of the most powerful collection tools the IRS has. Simply by filing it in the county courthouse and not doing anything, the IRS collects millions of dollars from delinquent taxpayers. While the law pertaining to tax lien is nuanced and sometimes difficult to understand, this article will briefly cover the general impact on the average wage earner or small business.
The lien comes into existence after the IRS demands payment for the delinquent tax and the payment is not made. This is called a silent or secret lien because nobody, like your bank or neighbors, knows about it. But from the date it comes into existence, it attaches to everything you own or have rights to. It attaches to your home, car, clothes, bank account, wages…everything!
Are there exceptions? Yes, but this article will not address the exceptions.
When the IRS starts active collection, like sending you notices or a revenue officers knocks on your door and you owe more than $10,000, they will generally file what is called a “Notice of Federal Tax Lien (NFTL).” This is the credit killer because this document is filed in the county courthouse for the general public, including credit reporting agencies, to see. So when you try to refinance your home or borrow money to buy a new car, the NFTL shows up like a big red blotch on your credit report. A lot of banks won’t lend you money.
Can you stop the IRS from filing a Notice of Federal Tax Lien when you owe tax? Generally not…but like everything else with the tax code, there are exceptions to detailed for this article. You can appeal the filing of the lien but generally the IRS wins these appeals.
Will they ever release a Notice of Federal Tax Lien while you still owe tax? Generally, no, but as part of the IRS’ Fresh Start program, if you owe $25,000 or less, agree to pay it off in monthly payments over 72 months or less, and sign up for direct debit withdrawal of the payment from your bank account, IRS will “withdraw” the tax lien. Withdrawal of the tax lien is another legal procedure that withdraws public notice but it does not eliminate the tax debt. In other words, the lien is cleared from your credit report but you still owe the tax.
So when the national tax mills claim they can have tax liens removed, remember that you have to meet very specific criteria and if you don’t, the lien will remain in place until all the tax is satisfied or becomes unenforceable. This means that the tax was paid in full or resolved in another manner such as an offer in compromise (settlement).
If you owe tax to the IRS, expect a tax lien to be filed, but it might be worthwhile to consult with a tax professional that deals in IRS tax debts to see if there are any options to mitigate its effects.
The Gregory Law Group PLLC, comprised of two former IRS attorneys and consultants formerly with the IRS, specialize in tax controversies with the IRS.