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A tax lien is a legal claim, made by a taxing agency (such as IRS) for the amount of taxes, interest, and penalties they allege that a taxpayer owes. A tax lien is effective once the taxpayer (person or business) doesn’t pay the alleged tax debt after a demand for payment is made by the taxing agency.
With the IRS, the general process is that they will issue an assessment, wait thirty (30) days for payment, then issue a CP 501 Notice (Demand for Payment). If the alleged tax debt goes unpaid, the lien will exist, and the IRS will start collections actions.
The taxing agency does not have to give you notice before the tax lien exists. The lien exists as soon as the debt they claim you owe goes unaddressed. They only have to give notice for their lien to have priority over other creditors. With the IRS, they will issue a Notice of Federal Tax Lien, which is a public notice that tells all of your creditors that the lien exists.
A federal tax lien has a very, very long reach. It attaches to all of your property, and your current and future interests in any property. All of your property is subject to the tax lien, and no property is exempt (there is one exception to this, but it is rare). Tax liens from state taxing agencies can attach to almost all of your property as well, but usually with a few more exceptions.
The effects of a tax lien are numerous. The taxing agency can begin collections processes once the tax lien exists, including levying on the property the lien covers (which is almost everything). They can also begin garnishing your bank accounts and wages. Tax Liens can impact your credit. A tax lien, especially if a Notice of Tax Lien has been issued, can make it difficult to sell or obtain financing on your property, including your home.
While the effects of a tax lien are numerous and, at times drastic, there are many things we can do for taxpayers to resolve the issues surrounding the lien and the effects of the lien. The single best thing taxpayers can do for themselves is to contact us as soon as possible once they start receiving letters and Notices. There are tight deadlines we have to work with, and the sooner taxpayers contact us to start resolving these issues, the better.