Tax Dictionary – Federal Tax Lien
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.
Receive an IRS 2645C letter? Learn more about letter 2645C, why you received it, and how to handle it with help from the tax experts at H&R Block.
Get the facts from H&R Block about the IRS monthly payment plan called a conditional installment agreement, which considers your full financial picture.
Learn more about letter 1058, why you received it, and how to handle an IRS bill for unpaid tax with help from the tax experts at H&R Block.
Learn more about form CP71H, why you received it, and how to handle an IRS CP71H notice with help from the tax experts at H&R Block.