What’s a Notice of Federal Tax Lien? How is it Filed?

What is a Tax Lien and How to Get a Lien Release or Removed?

All About Federal Tax Liens 

When the Internal Revenue Service wants to enforce delinquent taxes, penalties, and interest against a Taxpayer — there are various mechanisms they can use to achieve their goal. One common method the IRS uses is to place a tax lien on the Taxpayer’s properties. Technically, a tax lien occurs at the time the tax and/or penalty is assessed — and is between the IRS and the Taxpayer. If instead, the IRS wants to claim creditor rights against third parties, it will issue a Notice of Federal Tax Lien (NFTL). With a Notice of Federal Tax Lien, the IRS puts creditors and others on notice that the government has placed a lien against property owned by the taxpayer. In turn, the IRS maintains the lien until the debt is satisfied, pending the statute of limitations. But, just because the IRS has a tax lien over the Taxpayer’s property does not mean it is necessarily the endgame for the Taxpayer — especially since an NFTL can serve as the catalyst to allow the Taxpayer to pursue a Collection Due Process Hearing. Let’s go through five important facts about a notice of federal tax lien.

A Notice of Federal Tax Lien is Public

Unlike various other types of mechanisms that the IRS may use to enforce a debt against the taxpayer, the Notice of Federal Tax Lien is a public document that can impact the rights and responsibilities of third parties. With a Notice of Federal Tax Lien, the Internal Revenue Service files a public document that puts the creditors on notice that the government has a legal right to your property. As you may imagine, this can cause taxpayers great distress — as well as impact their ability to conduct business, obtain credit, etc.

A Tax Lien is not the Same as a Tax Levy

The tax levy is not the same as the tax lien. With a tax levy, the US government earmarks certain specific funds — such as bank accounts or wages – to lock them up for the IRS to then levy (take) from the taxpayer to satisfy a debt. A tax lien is different; it is a general claim of the property that the Taxpayer owns. 

A Tax Lien Secures the Government’s Interest in Your Properties

A Notice Federal Tax Lien is not attached to just one specific asset but rather a lien again properties owned by the taxpayer. That does not mean that the IRS can just go in and begin selling all your assets, but it does impact the total amount of proceeds the Taxpayer will receive when they sell their property for example (since the amount of lien will have to be satisfied from the proceeds). This is different than a tax levy for example, in which a specific set of funds such as a bank account or wages are levied, in order to satisfy the debt.

The Federal Tax Lien Can be Withdrawn (Form 12277)

Just because the IRS put a notice of federal tax lien on your property does not mean that a Taxpayer cannot get the notice of the lien removed. Taxpayers can file Form 12277 in order to get try to get the notice of federal tax lien removed. Of course, just filing the form does not mean that the IRS has to remove the lien and generally requires a taxpayer enters into a separate agreement for payment — noting, that if the person does not end up making payment the IRS can place a new lien.

Federal Tax Liens Can Negatively Impact the Taxpayer’s Life

When a person has a notice of federal tax lien on the property, it can become much more difficult to maneuver in their general day-to-day activities. For example, it may be harder to obtain a new credit card, increase their credit line, or even obtain a mortgage. Thus, if possible, taxpayers should try to avoid having a federal tax lien placed on their property and try to negotiate before the lien is issued.

Collection Due Process

Once a person receives a notice of federal tax lien — and presuming that they have not previously sought a Collection Due Process hearing on the same specific issue — they can generally apply for a Collection Due Process hearing (CDP). With a CDP, the taxpayer has the ability to dispute the underlying issue –– whether it is the tax liability or penalties. If the taxpayer is not successful at their Collection Due Process hearing they can also typically move on and submit a case to the US Tax Court.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

Contact our firm for assistance.