Tax Liens — What is it and how it works
What Is a Tax Lien?
It is illegal for someone or a business to keep the money they owe the government without paying taxes. This secured interest in your property is called a tax lien. In general, a lien is a policy enforced promise to pay a bill, like a loan or, in this case, taxes. It is possible for the collector to take the assets if the debt is not paid.
Understanding Tax Lien
A tax lien can be put on a property by the federal or state government if the owner is behind on their income taxes. If someone doesn’t pay their property or local income taxes, the government can put a lien on their land.
No, the lien doesn’t mean the house will be sold. Instead, it makes sure that the tax authority has priority over any other creditors who want to take the debtor’s property.
How a Tax Lien Works
When a customer gets a letter telling them how much they owe, the process starts. That’s what this is called a warning and threat to pay.
The Internal Revenue Service (IRS) can put a lien on a taxpayer’s property if they don’t pay the debt or try to work it out with the agency.
All of a taxpayer’s assets are subject to this lien, such as securities, property, and cars. The lien also covers any property the taxpayer buys while the lien is still in place. It also covers any property owned by the business and any money owed to the business.
If the taxpayer files for bankruptcy, the lien and tax bill may still be there after the bankruptcy. While bankruptcy can get rid of most bills, it can’t get rid of federal tax debt.
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There is an easy way to get rid of a federal tax lien: pay the taxes that are owed. But if that’s not possible, there are other ways to deal with a lien that will work with the IRS.
The IRS might lift a tax lien if the client agrees to a payment plan that includes a monthly automatic withdrawal until the debt is paid off.
The taxpayer might be able to “discharge” a certain property, which would mean that it is no longer subject to the lien. Not all taxpayers or assets can get a discharge. Publication 783 of the IRS explains the rules for releasing property.
Subordination doesn’t get rid of the lien on the property, but it can make it easier for the owner to get another loan or mortgage. To ask for this to happen, use IRS Form 14134.
Withdrawal of notice is another process that takes away the public’s notice of a federal tax lien. If the taxpayer withdraws, the IRS does not have to fight with other creditors for the debtor’s property. However, the taxpayer is still responsible for the debt. You need to fill out Form 12277.
If the taxpayer can’t pay the taxes, they need to pay as much of the bill as they can and go to bankruptcy court to get the rest wiped out.
What Happens Next
If the taxes aren’t paid, the government can legally take the taxpayer’s property through a tax levy to get the money it’s due.
With a lien, the government has a claim on the property. With a levy, the government can take the property and sell it to pay off the tax bill.
When it’s over, tax liens are made public. The county records will be changed to show that the lien has been released after the tax debtor pays off the bill.