The Federal Tax Lien is a public document filed by the Internal Revenue Service (IRS) to individuals with tax debts. It is a legal claim on an individual’s property, including real estate and financial assets, as security for unpaid tax obligations. A lien is filed when a taxpayer fails to fully pay the debt after receiving notification from the IRS.
A lien is a public record, which means it could be accessed by different credit reporting agencies and would eventually appear on one’s credit report. As a consequence, this could limit one’s ability to get credit and to apply for loans. A federal tax lien also attaches to the taxpayer’s assets, such as properties, securities, automobiles, and even retirement accounts and residences. If the taxpayer fails to settle his or her debt on time, the government has a legal right to seize all the aforementioned assets.
There a number of options for getting rid of a lien, including discharge of property, subordination, and withdrawal. These options are aimed towards reducing the adverse impacts of a tax lien for the best interest of both the government and the delinquent taxpayer. Although such options exist, it is best to avoid a lien altogether by filing and paying taxes in full and on time. The IRS also advises taxpayers not to ignore important notifications from the agency to avoid costly tax mistakes.