Posted by Fred Lake

Understanding Tax Lien and How to Respond

Understanding Tax Lien and How to Respond


If you owe back taxes, chances are you will have to deal with tax liens and tax levies. This article explores how a tax lien can affect you and tips to get rid of it. 

Note: In response to the coronavirus pandemic, the IRS disclosed that tax liens and levies would be suspended for a while between April 1 and July 15, 2020.

What is a tax lien?

When the government makes a claim on your property, majorly assets, and real estate, it is called a tax lien. This happens most times when you have back taxes.

Failure to take care of a federal tax lien could lead to a tax levy. With a tax levy, the government seizes your property to take care of the tax.  Tax levies come in various ways, such as wage garnishment, seizing of assets and bank accounts, etc.

Effect of Tax Lien on taxpayers

When you owe back taxes and Uncle Sam slams you with a tax lien, expect any following.

  1. Your creditworthiness Takes a Hit.

Even if a tax lien doesn't appear on credit reports again, the IRS can inform creditors and the government of their right to your property caused by your tax debts via public notice. This affects your ability to get a loan as no one will trust your ability to pay back.

  1. It will affect a Home Sale or Refinancing.

Whenever anyone makes a title search, a tax lien comes up. Hence, with equity on a property you want to sell or refinance, you will have to target some of the funds to take care of the taxes.

  1. A tax lien is time-consuming.

Once you owe the IRS, you will be directed to the automated collection system (ACS). The implication of this is hours trying to settle with the IRS call center. You might even have a revenue officer assigned, which means a lot of in-person visits.

  1. Possibility of Ending up with a tax levy

If you do not clear your back taxes after getting the federal tax lien, you will likely get a Notice of Intent to Levy from the IRS.     

How to Get Rid of a Tax Lien 

  1. Pay Your Tax Debts

If you owe the IRS, there is no shortcut or miracle to expect than to clear the debt. In many cases, you cannot stop a tax lien, except you pay what you owe. Be sure to communicate and cooperate with them. You cannot succeed in trying to fight or outsmart Uncle Sam. It will come back with consequences.

  1. Structure a Payment Plan with the IRS

One sad thing about owing back taxes is the penalty and interest it accrues over time. However, a tested way to convince the IRS to get the federal tax lien off your public record is to allow them to take three payments consecutively from your bank account. This is called a direct debit installment agreement. There are various payment plans you can set up with the IRS. All you have to do is visit their website. You do not need any expert to help with this.

  1. Request for an Offer in Compromise

In some cases, as long as you qualify, you could pay a lesser amount than you owe. The clause, however, is that qualification is strict, and people that succeed are usually few every year.  

Besides, you must have filed all your returns to qualify. People currently in bankruptcy or audit do not become eligible to apply. You can visit the IRS page and access their online tool to determine if you qualify. 

  1. File an Appeal

If you believe that the tax lien is unjust, you can request a collection due process hearing at the IRS office. This also applies if you do not agree with the IRS employee decision about a tax lien. A meeting with the employee-manager will review your case, and the Office of Appeals can review your case. 

  1. File for Bankruptcy

This should be a last resort, as it is an ugly option. If you are successful, it can get rid of your tax debts. It comes at a price as well, with tremendous rules to follow.



Fred Lake
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