Tax Dictionary – Federal Tax Lien

IRS Definition:

A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:

  • Puts your balance due on the books (assesses your liability);
  • Sends you a bill that explains how much you owe (Notice and Demand for Payment); and
  • You neglect or refuse to fully pay the debt in time.

The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property.

More from H&R Block:

If you don’t pay a tax debt that meets lien-filing criteria, the IRS files a tax lien to secure the government’s legal claim to your property and your rights to property.

A lien filing doesn’t mean that the IRS will seize your property. It just makes sure that the IRS will get the first rights to your property over other creditors.

A federal tax lien has several negative effects:

  • Harms your credit
  • Affects your ability to get a loan
  • Affects your ability to sell or transfer property

Normally, the IRS tries to collect back taxes before it files a federal tax lien. The IRS will send a series of notices, and if you don’t pay, the IRS may file a lien. But the IRS doesn’t have to send multiple notices before it files a lien. The law requires only that the IRS make a tax assessment and demand payment. At that point, if the taxpayer refuses or doesn’t pay, the IRS can file a lien.

If you owe more than $10,000 and you’re not in an arrangement to pay all the taxes you owe within 6 years, the IRS will generally file a tax lien. If you owe more than $50,000, the IRS will almost always file a tax lien, regardless of whether you’re in an agreement to pay.

There are several options to avoid a federal tax lien.

The first is obvious: Pay the tax, penalties, and interest in full.

The second is to get into an installment agreement that doesn’t require the IRS to file a lien.

Learn all of the options you may have if you can’t pay your taxes.

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