Tax Lien
A tax lien is one of the IRS' enforced
collection efforts where it takes aggressive actions to collect on
its tax debt. The IRS can impose a tax lien for delinquent
taxes owed on property, or as a result of failure to pay income
taxes or other taxes.
The IRS will send a notice of its intent to
file a lien against your property to your last known address and
to your local recorder's office (a local government office that
keeps records of real estate transactions). This is your last
chance to prevent the lien, which should be your number one goal
instead of looking to remove a lien after its in place.
Once a lien is in effect, it has several
negative consequences: 1. The lien will be recorded by
the major credit reporting agencies and serve as a public notice
that you owe the IRS money. Your credit rating will be severely
damaged, and you will probably have great difficulty borrowing
money in the future.
2. If you sell the property that has a lien filed against it,
the IRS will automatically take the amount it thinks it is owed
before you receive any money from the sale.
Once a lien is in place, you have few options
to have it removed. Your best option continues to be settling your
tax bill in full. (While the IRS may still accept a payment
arrangement, the lien will likely stay in place until your entire
tax debt, including interest and penalties, is paid.) Another
option is a complex arrangement called lien subordination. Through
this arrangement, the IRS may allow you to take out a second
mortgage, or some other loan against the property the IRS issued a
lien on. You would then be able to use the money from your loan to
pay your tax debt.
Bear in mind that this is an involved procedure
that may require professional know how to carry out, and has
ramifications that go beyond your tax debt. For example, while you
may have paid your tax debt through lien subordination, you may
still have to direct payments to your bank to repay the second
mortgage. You should consult with a qualified tax professional
before deciding if lien subordination is right for you.
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