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What Can Happen If You Owe the IRS?

Bad news: If you owe the IRS money, it could slap a lien on your property until you are able to pay the tab. It doesn't matter if other creditors already have rights to the assets. However, if you take the proper steps, you may subordinate the IRS lien to other liens.

Background: When you are in arrears to Uncle Sam, the IRS may establish a legal claim to your property, such as your house or car, as security or payment for the debt. But an IRS lien can be filed only after the following three steps have occurred:

1. The IRS has assessed a tax liability;

2. The IRS has notified you of the deficiency and formally demanded payment; and

3. You neglected to pay the bill, or otherwise chose not to pay it, within 10 days of the notification.

By filing notice of the lien, the IRS effectively “warns” other creditors about its rights against your property. This notice is used by courts to prioritize claims in certain situations (e.g., bankruptcy proceedings or real estate sales). The lien remains a matter of public record until the debt is paid off in full.

Once an IRS lien has been filed, it can severely impair your credit rating. You probably won't be able to buy a house or car, sign a lease or obtain credit cards. Therefore, it's definitely in your best interest to resolve this matter as soon as you can.

Good news: An IRS lien isn't forever. In fact, notice of the lien may be withdrawn if

*The notice was filed too soon, or not according to IRS procedures;

*You entered into an installment agreement to pay the debt on the notice of lien (unless the agreement provides otherwise);

*The withdrawal will speed up collection of the tax; or

*The withdrawal would be in the best interests of both you (as determined by the Taxpayer Advocate) and the government.

The IRS will provide you with a copy of the withdrawn notice. If you request, it will also send copies to institutions you name.

Final point: You can bring a lawsuit against the IRS in federal court if it improperly fails to release a lien. The lawsuit must be filed within two years of your claim.

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	[ return to list ] What Can Happen If You Owe the IRS? Bad news: If you owe the IRS money, it could slap a lien on your property until you are able to pay the tab. It doesn't matter if other creditors already have rights to the assets. However, if you take the proper steps, you may subordinate the IRS lien to other liens. Background: When you are in arrears to Uncle Sam, the IRS may establish a legal claim to your property, such as your house or car, as security or payment for the debt. But an IRS lien can be filed only after the following three steps have occurred: 1. The IRS has assessed a tax liability; 2. The IRS has notified you of the deficiency and formally demanded payment; and 3. You neglected to pay the bill, or otherwise chose not to pay it, within 10 days of the notification. By filing notice of the lien, the IRS effectively “warns” other creditors about its rights against your property. This notice is used by courts to prioritize claims in certain situations (e.g., bankruptcy proceedings or real estate sales). The lien remains a matter of public record until the debt is paid off in full. Once an IRS lien has been filed, it can severely impair your credit rating. You probably won't be able to buy a house or car, sign a lease or obtain credit cards. Therefore, it's definitely in your best interest to resolve this matter as soon as you can. Good news: An IRS lien isn't forever. In fact, notice of the lien may be withdrawn if The notice was filed too soon, or not according to IRS procedures; You entered into an installment agreement to pay the debt on the notice of lien (unless the agreement provides otherwise); The withdrawal will speed up collection of the tax; or The withdrawal would be in the best interests of both you (as determined by the Taxpayer Advocate) and the government. The IRS will provide you with a copy of the withdrawn notice. If you request, it will also send copies to institutions you name. Final point: You can bring a lawsuit against the IRS in federal court if it improperly fails to release a lien. The lawsuit must be filed within two years of your claim. [ return to list ]
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