The Revenue Officers within the IRS generally have broad discretion and authority when it comes to determining the method for, and engaging in the practice of, collecting taxes. As part of their strategy, the IRS may employ steps to induce tax collection, such as a tax lien, the initiation of levies, irs wage garnishments, and seizure of assets. A tax lien is generally somewhat of a last report method for the IRS because it is time consuming and because the United States generally views attaching to a residence as a method of last resort. If no other options are plausible, or if the taxpayer is not willing to cooperate with the IRS, there may be not other choice but to issue a tax lien. Once issued, a tax lien attaches to the home and makes it impossible for the taxpayer to sell the property without first satisfying the owed tax debt. It should be noted that tax liens are public record, and if highly encumbered with liens, it may make it more difficult to sell a particular piece of property.
Federal Tax Lien
A federal tax lien gives the IRS an actual legal claim to the property of a taxpayer as collateral for unpaid taxes. Generally speaking, a Federal Tax Lien is used by the IRS as a security for payment of taxes or as an actual payment of a outstanding tax liability. Federal tax liens are not filed as the first course of business – usually, the IRS fully assess the individual situation and then takes pre-defined action. Before a Federal tax lien is imposed, the IRS will send a Notice and Demand for Payment to the taxpayer. The Notice is used for purposes of informing the taxpayer that they have an outstanding tax liability (i.e. unpaid tax debt) and they will demand payment of that debt. After the Notification and Demand have been sent, and if the taxpayer refuses to pay or fails to make arrangements to have the debt paid off in full within a negotiated period of time (at least 10 days after the IRS sends notification), then a Federal tax lien against an individual’s property may be attached. Additionally, a Federal Tax Lien attaches to the physical property as well as to the rights of the taxpayer in the property; thus, an owner cannot sell their property until the tax lien is satisfied and removed from the recorded deed records of the property.
State Tax Lien
State Tax Liens are similar to the liens that the Federal Government may impose on individuals. The states themselves may also file tax liens on the personal property of taxpayers. The state imposed lien is for unpaid state income taxes, and generally is similar in nature to a Federal lien. Once a state files a tax lien on the property of an individual, the debtor is thereby barred from selling or a refinancing the property until the debt from the tax lien is satisfied.
Tax Lien Certificates
In certain states, the laws make it possible for the state to hold the first lien on the property, and when this occurs, the lien encumbering the property can be sold at auction as what is known as a Tax Lien Certificate. The holder of the tax lien may either choose to hold the lien and may be homeowner pay a higher premium to dissolve the lien, or the holder may decide to sell the property, if allowed in that particular jurisdiction. While there are usually time limits in place whereby the holder of a Tax Lien Certificate cannot force the sale of a home, once the statutory period has passed, the lien holder is free to act.
Sales Tax Lien
A sales tax lien occurs in situations such as Tax Lien Certificate sales, whereby the state has a first priority lien on a piece of property, and that lien certificate is sold as commercial paper to buyers who are interested in buying debt. When the homeowner wants to settle the debt, the holder of the Tax Lien Certificate will have to pay a premium since the tax lien was the result of a sale by the state.
Attorney for Tax Liens
When dealing with a situation involving unpaid taxes or a tax lien on the property of an individual, it is very important to seek the expertise of an attorney who is knowledgeable in the laws of the specific jurisdiction. Whether it is a Federal or State imposed lien, taxpayers have the best chance at getting favorable terms if they have an attorney advocating on their behalf. Having an experienced attorney assist with the tax lien negotiation process gives the individual taxpayer a much better chance of success.
