Federal Tax Liens & IRS Liens: What to Do?

Uncle Sam can hit you with state, federal and IRS tax liens.

IRS liens are often misunderstood by individuals, who sometimes don’t realize the very real damage they can do until it is too late. The IRS can put a lien against properties owned by an individual in order to settle outstanding tax debts any time after they have notified a taxpayer and have informed them of the intent to place a lien. Usually the waiting period between informing you of their intent and actually placing the federal tax lien is only a few weeks.

What lulls people into thinking IRS liens aren’t a concern is their passive nature. The government will usually place a lien against property such as real estate, including the primary residence and any additional property and automobiles the person owns. The IRS doesn’t usually seize these properties (which is called levying the property), but waits until the person attempts to sell the property. For this reason, many people gain a false sense of security if months go by when the IRS doesn’t attempt to do anything other than placing the lien. Unfortunately, there are many consequences of a lien that aren’t obvious that mean an individual should get it removed as quickly as possible.

IRS Liens Mean You Can’t Buy or Sell Property

The most damage done by IRS tax liens are to credit ratings. If you decide you would like to purchase a car or home, it will be difficult (if not impossible) to find a lender willing to work with you. This is because tax liens take precedence over all other liens, including mortgages or private loans. This means that if you default on a loan, the lender will not be able to repossess the property or recoup the losses on the sale of a foreclosed home until after the IRS gets its money. It doesn’t matter if you apply for the loan after the lien has been placed – it will continue to apply to any new property purchased.

You will also be disappointed if you attempt to sell your house or property. The lien means that when the property is sold, the agent handling the sale is required by law to send money to the IRS first before giving you any proceeds from the sale. Because of the potential for problems, many buyers won’t even consider purchasing a home with an lien against it.

Keep the taxman away from your house.Finally, a lien shows up on your credit report. That means that any time your apply for credit of any kind, the agency offering credit will see that there are outstanding IRS liens which will limit your ability to repay any future debts.

As you can see, tax liens can do plenty of damage even in their passive state, so if you have one issued against your property, don’t just ignore it because no seizure or pursuit of the property is actively taking place. The silent damage can be considerable. Be sure you talk to an income tax specialist who can help you get any IRS liens quickly lifted so that your credit and your ability to buy or sell your possessions is unencumbered.



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