Being on the receiving end of a federal tax lien can be unwelcome, for a variety of reasons. The lien will show up on an individual’s credit history check, with the likely result being either denied credit or qualifying for new credit only under an exorbitantly high rate of interest. A federal tax lien may also last for up to ten years, although the IRS generally will release it within 30 days of receiving payment of the tax debt at issue.
Fortunately, there are certain taxpayer protections regarding a federal tax lien filing. First, the Internal Revenue Service is required to follow certain notification procedures before it files a lien. For that reason, a taxpayer who has received communications from the IRS about alleged tax debts should not delay in consulting with an attorney that focuses on tax law. There may be ways to proactively avoid the lien filing, such as a payment plan or other IRS payment options.
If a lien filing cannot be avoided, there may also be options for easing its negative impact. Keep in mind that a lien typically applies not only to real estate, but also to a taxpayer’s other assets and personal property. Even worse, the lien also attaches automatically to any assets acquired in the future, to the extent the lien is still in effect. However, a taxpayer can apply to have the lien discharged, or removed, from specific property items.
If a taxpayer’s strategy for regaining control of his or her debt management includes a new loan, mortgage or even refinancing, a federal tax lien might interfere with that process. However, a taxpayer may qualify for subordination, or allowing certain other creditors to have priority over the IRS’ secured interest. Under certain conditions, a taxpayer may also qualify for withdrawal, where the IRS removes the lien. Both of those options might improve a taxpayer’s chances of obtaining new credit.
Source: “Understanding a Federal Tax Lien,” copyright 2016, Internal Revenue Service