What is a Tax Lien?
What is a Tax Lien? | 3 Crucial Things to Know Today

What is a Tax Lien? | 3 Crucial Things to Know Today

Are you in a situation where you are worried about the Internal Revenue Service seizing your assets? If you have asked this question, you’ve likely asked many other questions about the IRS. What is a tax lien? Will this happen to me? How can I prevent a tax lien?

In this article, we will answer many questions that might be flooding your mind. What is a tax lien, and how can I possibly stop the IRS from doing this to me? If it does happen, what will this mean for my financial future? How will I face creditors again if it does truly affect my credit?

Maybe you also wonder what a tax levy is and how that will work if the government does take action against you for not paying your taxes. Try not to fret too much because you can work with the government to pay back any taxes you need to pay.

Remember, the government or the IRS would rather have their tax payment than seize your assets or property. You will likely be able to get a handle on the situation rather nicely when you talk to the IRS or a qualified tax professional about your particular situation.

Let’s explore the topic even further to truly understand the question, what is a tax lien?

What is a Tax Lien?

A tax lien (in simplest terms) is an attempt by the government to collect taxes you owe. This will likely mean a legal claim against your property, unfortunately. There are ways to minimize the risk of a tax lien, but let’s first answer the question: What is a tax lien?

Are you of the opinion that the Internal Revenue Service might begin to seize your assets? Do you think the government might take out a tax lien on your property? What is a tax lien?

A tax lien is the government taking what is due to them – believe it or not! If you have failed to pay a tax debt that you needed to pay, they do have the legal right to take out a tax lien.

What is truly scary is that your assets and financial security are at risk with a tax lien. The simplest way to remove this risk is to work with the government to pay back the money owed as quickly as you can. No one wants to face a tax lien!

Questions That Linger About Tax Liens

You might still have questions. Really, what is a tax lien? How can the government do this to me? What does a tax lien mean for my financial future? How can I prevent myself from becoming a victim of a seizure of property? What should I do next?

So, what is a tax lien, and what does it mean for your financial profile? Let’s look at all the answers to these questions.

Why Does the Internal Revenue Service Have Tax Liens?

Tax liens are a protective feature of the IRS. A tax lien protects any interest that the IRS has in your property. “Property,” as defined by the Internal Revenue Service, includes any personal property you might have, any real estate holdings you possess, and all of your financial assets.

So, now you might wonder, when does the IRS issue a tax lien? In what circumstances will the IRS seize my assets and property?

One thing you don’t need to worry about is this being a swift process. The Internal Revenue Service will give you plenty of chances to pay back what you owe.

You might feel like you are under the gun to get things filed and paid quickly, especially if you failed to file and pay taxes in a previous year. However, it is important to keep in mind that a federal tax lien will only occur in certain tax situations. In other words, they give you time.

When Will a Federal Tax Lien Exist?

If you wonder when the IRS will begin to seize your assets as part of a tax lien, this should answer your question. First, you will be notified by the IRS that you owe them money. The IRS sends written correspondence in most cases since they work with so many taxpayers.

One of the first things you will notice is written correspondence from the IRS. They will attempt to contact you to resolve the matter and to let you know what is going on.

The Internal Revenue Service will send you a bill that will explain exactly how much you owe so that you can make a timely payment and resolve any tax debt.

Next, the IRS will put your assets “on the books.” This means that the government will not rashly take control of your assets without proper warning. The way that they do this is by issuing a Notice and Demand for Payment.

You might be thinking that those are the only two things that will happen before your vehicle or other personal property is seized as part of a federal tax lien. There is more to it, so try not to get ahead of yourself.

When Do Things Get Scary with a Tax Lien?

If the Internal Revenue Service has done those two things, there will be another important element present. You have neglected or refused to pay your tax debt in a timely manner. That is truly the key thing to know about a tax lien. You will not have your assets or property seized unless that has taken place.

If you wonder how to remove a tax lien or prevent a tax lien from happening in the first place, that is the answer. Pay your taxes in a timely manner. If you are financially unable to pay your taxes, the IRS will work out a payment plan or other arrangement with you. They do want to receive their money, so they will work with you.

If you have neglected or refused to pay your taxes, you will notice that the IRS has issued a Notice of Federal Tax Lien. This alerts creditors that they now have the right to seize your property as part of a tax lien. In other words, they now have a legal right to your property.

IRS Publication 594: The Internal Revenue Collection Process explains all of the details in regard to how this is done. Better yet, work with a qualified and experienced tax professional to help you resolve your tax problems. A tax expert who knows all about tax resolution is your smartest choice in this matter.

What Does a Tax Lien Mean for Your Finances?

Tax liens are visible on public records, unfortunately. However, they do not appear on your credit report as of 2017. That is truly good news. If you happen to notice a tax lien on your credit report, notify the applicable credit bureau in order to have it removed. You should monitor your credit report on a regular basis to watch for tax scams and other issues that might occur.

Today, identity theft is quite prevalent, so make sure you pull your credit reports at least once a year so that you will be aware of everything that affects your financial security.

Does a tax lien mean that you will not have bad credit? What are the financial issues related to having a tax lien?

Unfortunately, there are still repercussions on your financial stability in regard to tax liens if you do happen to have the IRS place one on your property. It is always best to work with a tax professional to determine what your tax situation is and how it can be resolved so that you can pay any taxes you owe to the IRS in a swift manner.

Related Article: What To Do If You Owe Money to the IRS

#1 You May Not Be Able To Buy or Sell An Asset.

If you are worried about a tax lien, the thing you might not realize is the fact that tax liens do appear in title searches. Something like this can cause you to lose equity toward the owed debt.

Keep in mind that while the tax lien does not disqualify you from buying an asset, you must declare the lien when filing for credit.

When a tax lien is issued, it is essentially attached to every one of your assets. This includes vehicles, any property you have, and all securities. It will also apply to any future assets you acquire during the duration of the tax lien.

While this can be very detrimental, remember that the Internal Revenue Service is just trying to collect and WILL likely work with you if you are willing to pay what you owe in taxes. When in doubt in dealing with tax liens, always seek the counsel of a qualified tax consultant.

#2 Your Creditworthiness May Be Negatively Impacted.

Credit Report Unfortunately, a tax lien will negatively impact your credit. It will hinder or limit your ability to get further credit.

What you need to realize is that banks and other lenders may just feel you are a risk for loans and mortgages if you have a tax lien affecting your credit. All creditors will be aware that the government has a claim over your assets, making them less valuable as collateral.

If you attempt to get a vehicle loan or mortgage, you will likely have a difficult time because of the negative impact of a tax lien. Be sure to get your free annual copy of your credit report so that you can examine how the tax lien is affecting your credit.

When you are faced with this situation, work to build your credit back up. A qualified financial advisor can assist you with this, or contact our office for more information.

#3 The Government May Issue a Tax Levy.

A tax levy is not the same thing as a tax lien.

If you fail to acknowledge a tax lien, the government might have to file a tax levy. A levy is an issue to seize the asset and sell it. This is another attempt by the IRS to retrieve the money you owe. A tax levy will take your property in order to pay the taxes you owe.

Read More: Tax Problems and How to Solve Them

Other Issues with a Tax Lien

Another issue with a tax lien occurs if you have business property. A tax lien will attach itself to any business property you might have. This includes the assets you have in your business. Unfortunately, this also includes your accounts receivable.

Accounts receivable are the amounts you are owed from your clients, customers, or other business contacts. This will likely be something that your business is counting on, so it is best not to allow the IRS to gain the opportunity to issue a tax lien.

You can best do this by paying your taxes on time, working with a qualified tax expert, and filing your taxes when they are due. Remember that paying your taxes and filing your taxes are two separate things. You are required to pay taxes on the due date, usually April 15.

If you are unable to file your taxes on that date, you can request a tax extension for several months in order to get your documents together. However, you cannot pay your taxes late. If you do not know how much to pay in taxes, it is smart to estimate the amount to the best of your ability.

There is one more detrimental impact of a tax lien. This is the issue of bankruptcy. You might think that filing for bankruptcy will get you off the hook, but unfortunately, a tax lien will likely continue even after you have filed for bankruptcy. The IRS will find a way to collect its funds.

If you have questions about this or any part of taxes, be sure to contact our office for details on how we can best help you with tax resolution.

Other Helpful Tax Lien Resources

You are always welcome to contact our office for tax assistance or for a referral to the right resource for you. There are, however, other resources available that might assist you in some way.

If you wish to talk to someone about tax liens, you can contact Centralized Tax Lien Operation at 1-800-913-6050. This contact will help you verify a tax lien or request a tax lien payoff amount. You might also be able to get a tax lien released.

For help at the local level, contact the Collection Advisory Group. They assist with very complex tax lien issues. This can include a discharge of your tax lien or other issues that you might be having in regard to your tax liens.

You can appeal a tax lien, as well. The Office of Appeals is the right office for this. If the Internal Revenue Service has filed a Notice of Federal Tax Lien, you can work with this office to resolve or appeal the matter.

There are also independent organizations within the IRS that can assist with tax liens. To use a Taxpayer Advocate Service, you only need to call 1-877-777-4778.

You might have already filed for bankruptcy. If that is the case and you wish to know how that will impact your tax debt, be sure to contact Centralized Insolvency Operation at 1-800-973-0424.

To contact the IRS directly regarding your personal tax lien status, call 1-800-829-8374. The IRS also has a series of Tax Lien Videos. Be sure to check those out for further information.

What Is A State Tax Lien, And Is Indiana A Tax Lien State?

A state tax lien is the same as an IRS tax lien but money is owed to the state and the lien is used by the state.

Yes, Indiana is a tax lien state.

That is the short answer. This is mentioned in much more detail on the website of the Indiana Department of Revenue. If there is a tax warrant on your property, you will likely want to make a payment swiftly to resolve the situation.

A tax warrant may be issued by your state government, local government or a collection agency. The truth is that this is NOT a warrant for your arrest. It is only a means for these agencies to retrieve the total amount of taxes due.

In order to collect, you might see that the local government sell your property. Tax lien properties are sold at tax lien auctions in the majority of cases. Other ways the local government might collect taxes include levying your bank account or garnishing your wages.

Please work with a tax expert to resolve the issue before it reaches this stage. When a tax lien sale takes place, it can be detrimental to a taxpayer, as this was once their property or assets. Aim to pay all taxes due before allowing this to happen.

Consider speaking to a tax consultant if you are facing a tax lien. 

How Can I Avoid a Tax Lien?

You might wonder how you can possibly avoid getting a tax lien issued against your business, property, or personal or business assets. The best thing you can do is to pay your taxes on the due date.

You need to pay your taxes on time and in full to avoid further repercussions from the IRS. If you receive a notification from the IRS, make sure it is legit. There are quite a few tax scams out there. Also, do not ignore the correspondence from the IRS.

If you are unable to file your taxes on time, request a tax extension. If you are unable to pay your taxes on time, look into the many payment options or contact our office for further assistance in this matter.

Frequently Asked Questions

What are tax lien auctions?

Unfortunately, from time to time, tax lien auctions are held. This means your assets are seized and sold off by the government. When the time comes, unpaid assets of yours will be auctioned off at a tax lien sale. The IRS will make every attempt to work with you first, though!

Is tax lien investing wise?

If you are an experienced investor, tax lien investing can prove to be quite profitable. You can purchase the assets of someone who could not pay taxes on time. If you are an investor and wish to pursue this avenue, know that it can be profitable with real estate investing.

How will a tax lien affect you?

A tax lien is the government’s attempt to seize the assets that they now own. If you are unable to pay your taxes, be sure to let a qualified tax representative know. Otherwise, know that a tax lien can negatively impact your credit and other financial endeavors you might be seeking.

How do you look up a federal tax lien?

To verify a tax lien, request the pay-off amount, or release a tax lien, be sure to contact the Centralized Lien Operation Department at 1-800-913-6050. This department can assist you with obtaining the information you might need, but contact our office for tax assistance.

What are tax lien certificates?

If you want to buy tax lien certificates, invest in the right states. Florida is reported to be a great state to do tax lien investing in. Arizona also has a high interest rate, but you must be a savvy investor to invest in tax liens. Meet with a qualified financial advisor to discuss options.

To Sum It All Up

Did you neglect to pay a tax debt you owe the government? Are you concerned about a tax lien and how it will affect your financial status? Does all of this still sound a bit confusing?

Don’t fret too much, as most people do not enjoy doing their taxes! That is why it’s best to call on a tax expert – someone who understands all of this and can actually show you what your options are for the future.

Nevertheless, the ultimate question should be answered: What is a tax lien? Maybe you still have questions or are concerned you might be facing a tax lien on your personal property or your other assets. Be sure to work with a qualified tax professional to assess your situation.

If you are looking for Indiana’s tax expert, you need not look any further than Sherry Borshoff. She has the skills, education, and experience to help you with any tax lien you might be facing. She also has the expertise to help you get all of your tax problems resolved quickly.

Our office looks forward to helping you with your tax lien concerns!


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