We all understand that taxes are important and we are required to pay them. But what happens to someone who chooses not to pay? What actions does the IRS take? In those instances, a federal tax lien is used. What is it? - it's the government’s legal claim against your property when you don’t pay your tax debt. If you sell your property while the lien is in effect, the amount that you owe the IRS, will be taken out of the sale proceeds and be paid to the government. Whenever a lien gets filed against you, it becomes part of the public record. Various credit reporting bureaus will see it and eventually this will show up on your credit report.
How a Lien Affects You
- Assets -- A lien attaches to all of your property, they may include real estate, personal property and financial assets. Not only that but it will also attach to any future assets you might acquire during the duration of the lien.
- Credit -- Once the IRS files a Notice of Federal Tax Lien, it may greatly limit your ability to get credit and will affect your credit score.
- Business -- The lien attaches to your business properties and receivable accounts.
- Bankruptcy -- Federal Tax Liens may remain in effect even if you file for bankruptcy. That is why contrary to popular belief, bankruptcy is not the answer when dealing with tax liabilities. Avoid a Lien
The simplest way to avoid a federal tax lien is to pay your taxes in full and on time. If a person is not able to pay the full amount of their federal tax, the IRS can provide payment options suited to your abilities to pay in order to help you settle your tax debt over time. So don’t ignore those letters from the Internal Revenue Service, it’s best to get in touch with them and work something out even if you don’t have the money to pay your taxes.