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Is the IRS getting slapdash with federal tax lien filings?

As we discussed in a recent post, the IRS is bound by certain notice procedures regarding a federal tax lien. Before the Notice of Federal Tax Lien is filed, the IRS typically must assess the liability, send a Notice and Demand for Payment, and allow the taxpayer 10 days to pay the disputed amount.

Yet what happens when a notice doesn’t reach a taxpayer through the mail, perhaps because it was sent to an old address? Unfortunately, the IRS may interpret a taxpayer’s silence as confirmation, or at least permission to proceed with the next steps. That could even mean a tax lien filing. According to a recent report compiled by the Treasury Inspector General for Tax Administration, over 24,000 Americans each year might suffer this fate.

Unfortunately, there are consequences to a tax lien filing, including reputational harm. After all, a lien filing puts creditors on notice and applies to all of a taxpayer’s property, even property acquired after the lien was filed. A lien may also interfere with plans to sell one’s real estate or apply for new credit. The interference can be substantial, considering that a federal tax lien can last up to 10 years.

A lien can also interfere with one’s intentions to keep financial affairs private. Celebrities such as rapper Iggy Azalea have learned this lesson the hard way. Ms. Azalea’s IRS tax lien is a matter for the tabloids, including its amount: nearly $400,000. The rapper has been forced to explain in public statements that she opted for installment payments to the IRS, rather than payment in full. Yet until the tax debt is paid, the lien will remain against Ms. Azalea's property.  

Source: Forbes, “Iggy Azalea's $400,000 IRS Tax Lien Dims 10 Carat Ring, But IRS Can't Revoke Her Passport,” Robert W. Wood, April 5, 2016

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