Federal Tax Liens: Here’s What You Need To Know

In the United States, When you don’t pay your federal taxes, the government will eventually file a tax lien against you. To understand what a tax lien is I will go by the definition on NerdWallet who describes it as, “the first step the IRS takes to begin the forcible collection of tax debt. It secures the government’s right to your personal property.” To understand what happens when the government files a tax lien against you, review some of the subtopics below. A tax lien is also a  public document and is often called a Notice of Federal Tax Lien. What does a tax lien do? It lets other creditors know that the government has a legal claim to your property. The functionality of a lien- It covers all of your assets, such as your home, investments and vehicles, and it includes any property you acquire while the lien is in place.

Understanding The Tax assessment Process

To receive a lien, you first have to be charged a tax. If you are familiar with this process, you can ascertain that when you file your tax return and owe the IRS money, you’ve been assessed taxes. If you don’t pay the amount you’ve been assessed when you file, a lien could eventually come your way, and if you don’t pay that lien, the Federal Government will place a lien on your property.  NerdWallet also notes, “there is a statute of limitations on tax collection. The IRS has 10 years from the date of assessment to collect unpaid taxes.”

The Collections Process

So what happens when you fail to pay your taxes? How does the IRS react? Well, if you fail to pay your taxes, the IRS will send you a letter every 30 days, called a Notice and Demand for Payment. Then, a final letter from the IRS will arrive and this letter will note a final intent to levy notice. It will indicate the agency’s intent to seize your property to satisfy your tax debt. After this letter is sent you have 30 days from the date of that letter to pay your taxes or go with the option of appealing the assessment.

If you are not able to pay or appeal with the assessment within nine months of the final letter, the federal government will file a lien against you in court.

What happens next?

Once the IRS files a lien they can or will start collecting the debt by garnishing your wages, seizing your account receivables,  if you own your own business, or even collecting your homes and automobiles. Unfortunately, a lien becomes part of your credit history, it can cause you to be denied credit, and it can also affect your marriages with your spouse.

To learn more about Tax Liens and the Federal Government, visit this article by NerdWallet