Understanding Federal Tax Liens

When you owe the Internal Revenue Service (IRS), it helps to understand aspects of the tax collection process, including how a federal lien can impact you.

According to the Wall Street Journal, more than 18 million U.S. taxpayers owed the IRS approximately $316 billion by the end of 2022. The reasons are as varied as they are common—expiring pandemic-era credits and deductions, failure to file or pay taxes in previous years, or accumulation of fines and penalties on unpaid balances.

The IRS has a relatively brisk collection process once a taxpayer and their debt have been identified. The most effective way to eliminate a tax liability is to pay the sum in full—but economic realities often prohibit payment in full upfront. Other options include arranging a loan, entering into a payment plan with the IRS, or in appropriate circumstances, applying for an Offer-in Compromise.

Short of these arrangements, the IRS will proceed to collect on its debt through a lien or a levy. While a levy is the action of taking possession of property and assets to satisfy a tax debt, a lien is a claim filed against your accounts, assets, and property.

The lien process

The authority for the IRS to place a lien on your assets is conferred automatically when you do not pay the full amount owing after receiving a first notice. The IRS may then file a Notice of Federal Tax Lien (NFTL). A federal lien allows the government to stake a legal claim to the following:

• Credit: With the filing of a NFTL, the creditor may have difficulty obtaining credit—an incentive to pay off or otherwise address the tax debt.
• Bankruptcy: An IRS lien and tax debt are generally not extinguished by a bankruptcy action.
• Company assets: A federal lien can be applied against accounts receivable, business, and business property.
• Assets: A lien takes priority against current and future assets obtained while a tax debt is pending, including accounts, securities, and property.

In addition to considering your payment options, you can ask for an audit reconsideration or request a Collection Due Process (CDP) hearing.

Do not ignore notices from the IRS. The lien and levy process will be carried out if you do not respond to make arrangements for payment or contest the debt. When you have questions about your business and personal options after receiving a notice, speak with an experienced tax attorney for advice.

Knowledgeable tax attorneys help you if you are facing collection from the IRS or a criminal tax charge

Serving local and international clients from offices in Chicago and Cleveland, the legal team at Robert J. Fedor, Esq., LLC delivers strong representation and guidance to those facing significant tax liability, offshore tax concerns, or payroll tax issues, among other challenges. Call 800-579-0997 or contact us online today.