The IRS places a federal tax lien on your property if you do not attempt to resolve unpaid back taxes. The lien is a public record that allows the agency to seize bank accounts, wages, homes, and other assets to settle your balance.
How long does an IRS tax lien last? This document automatically expires ten years after the tax assessment date for the debt in question. After ten years, the statute of limitations runs out and the IRS can no longer attempt to collect this debt.
When your past-due tax account is subject to a federal tax lien, you will receive a document titled Notice of Federal Tax Lien. This notice details:
When the IRS issues a tax lien, this document enters public record and gives the federal government claim to your assets and future wages. The lien is attached to all your property, including bank and investment accounts, any vehicles, real estate, or valuable items you own, as well as accounts receivable if you own a business.
When you sell property that is under an IRS lien, the government will receive the sale proceeds first. Once your tax balance is settled, you will receive any remaining funds. If the sale doesn’t cover your full debt, the lien will remain on your other assets.
Although the IRS has the right to seize your property, this action is not taken unless you fail to take steps to resolve your back taxes after you receive a Notice of Federal Tax Lien.
In most cases, a lien is not filed for back tax amounts under $10,000. For this reason, consider paying down your balance to below $10,000 if you are not able to pay the full amount.
A federal tax lien is self-releasing. That means when ten years passes, it automatically expires. This provision is contained directly in the language of the lien:
“IMPORTANT RELEASE INFORMATION: For each assessment listed below, unless the lien is refiled by the date given in column (e), this notice shall, on the day following such date, operate as a certificate of release as defined in IRC 6325(a).”
However, few taxpayers opt to wait out the statute of limitations. If you purchase property or earn money during that 10-year period, it can be seized by the IRS to repay the debt. A tax lien also makes it very difficult to get credit, including mortgages and other types of loans.
If you take steps to resolve your back taxes, such as submitting an offer in compromise to settle your account for less than you owe, appealing an IRS decision, or enrolling in an installment agreement, the expiration date on your debt is extended. If this occurs, the IRS can refile your lien within 30 days of the original expiration date and it will last until the new expiration date.
Even after the IRS cancels a tax lien on your account, it will still remain on your credit report for up to ten years. This black mark can make it difficult to qualify for loans, mortgages, and other types of credit. However, you can make a formal request to the IRS to have the lien information officially withdrawn from your credit report by filing IRS Form 12277. To qualify, you must:
If you are not prepared to pay off your tax liability immediately, you can also have a lien removed if you have entered into a payment plan.
The IRS may agree to withdraw your tax lien from specific property. For example, if you want to refinance your mortgage in order to repay all or part of your back taxes, the IRS may agree to discharge the lien so you can do so.
The agency may also subordinate the lien, which means it will allow another creditor to move into its preferred position so that you are able to get a loan. Like lien discharge, the IRS will only take this step if it puts it in an advantageous position to collect your back tax.
Taxpayers can avoid an IRS tax lien by requesting an installment agreement. This agreement allows you to repay your tax liability over time with monthly payments. You are eligible for this program if:
To apply, complete and submit IRS Form 9465. You can do this online or print a copy and mail it with your tax return.
When you have an IRS tax lien, you need to take action to avoid further collection actions. If you’re not sure what to do next, Solvable can help. We’ll match you with highly rated back tax assistance companies with extensive experience helping those who are struggling with back taxes.