What is a federal tax lien?


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Filing federal tax forms is one of those annual events that most people consider a chore or, if you’ve withheld enough from your paychecks, a godsend. Of course, not everyone can afford the taxes they owe, especially in the age of the Covid pandemic. In fact, back taxes owed by American taxpayers exceeds $ 130 billion.

Collecting back taxes is part of the IRS’s job, which leads to those annoying bills they send out. If that doesn’t work, they can issue a federal tax lien against you or your business. Don’t know what a Federal Tax Lien is or how it works?

Read on for a quick overview.

What is a federal tax lien?

A federal tax lien is essentially a public document issued by the IRS indicating that it has an interest in your assets, up to the amount you owe. Ironically, the document is addressed less to the taxpayers in question than to other creditors. The tax lien basically says that the government gets the first dibs in terms of collecting what it owes before any other creditor.

How does a federal tax lien work?

In practice, a privilege can wreak havoc in your life. For example, the notice itself can make businesses and banks reluctant to give you any kind of credit.

If you have a federal tax lien on your property, such as a home, it can make selling that home very difficult. At a minimum, it adds a lot of extra hoops that need to jump through. You can find out more about the privileged property sale at www.ibuysd.com.

An IRS tax lien also means they can foreclose on your property to try and settle the debt. It can mean anything from garnishing wages to taking vehicles or even homes and auctioning them off.

Resolve a federal tax lien

The good news is that the IRS would much prefer that you simply resolve the debt rather than go into collection actions or foreclosure of property. Collections and seizures are expensive and time consuming.

If you pay off the tax debt, that also waives the lien against you. You can make a lump sum payment and settle the debt in full. The IRS also offers payment plans that allow you to resolve it over time.

If you are in a difficult financial situation, you can also ask for an offer in compromise. This allows you to pay off debt for less than the amount owed, but it’s relatively complicated and rare.

Facing a federal tax lien

A federal tax lien can make your life much more difficult, depending on how aggressively the IRS pursues the collection. You can lose real estate, struggle to get credit, and face payday garnishment.

If you owe back taxes, choosing a refund option is your best course of action. It helps stop or prevent aggressive collection actions and will ultimately resolve your federal tax lien.

Looking for more advice on home or property financing? Check out the articles in our Property and Home Information sections.

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About Charles D. Goolsby

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