How to Deal with the Problem of an IRS Lien

You’ve done your best to pay your bills, your mortgage, and fulfill your tax obligations, then you started to struggle financially in today’s faltering economy. Maybe you lost your job or had some unexpected expenses arise. Now you are falling behind and in trouble. Sell your home? It’s not that easy, because now you are in trouble with the Internal Revenue Service and facing an IRS lien against the house. It is imperative to consult with an experienced tax attorney now to get help in preventing or removing an IRS lien.

IRS Tax Lien

Why you should understand your rights

In a nutshell, an IRS lien is an encumbrance against all of the taxpayer’s property and rights to property. It is similar to a bank’s mortgage or a lien on a car, with a few key exceptions. A lien encompasses everything the taxpayer owns, including the cash in his wallet, the clothes on his back and the furniture in his house. It is non-consensual, meaning that while a person may choose to apply for a bank loan to purchase a home, a federal tax lien can arise without the taxpayer’s consent or permission.

Lien versus Levy: What is the difference?

A levy is an execution of IRS power to seize property, while the lien remains a dormant right of the government. That right can be awakened by events such as the taxpayer’s sale or attempted sale of the property, or the IRS seeking to foreclose on the lien through a judicial procedure. An IRS lien can lull the taxpayer into a false sense of security by allowing use of the property or the opportunity to derive income from it. Sometimes the taxpayer may even sell the property to a buyer who has no knowledge of the lien, without incurring any legal obligation to the IRS. But forget it’s there and it may spring up out of the legal shadows when you least expect it.

The lien is authorized by the Internal Revenue Code, which states that if anyone liable to pay any tax neglects or refuses to pay it after demand has been made, the amount---including interest, tax, penalties and any additional fees—shall be a lien in favor of the United States on all property and rights to property, whether real or personal. The IRS is required to give notice and demand payment 60 days after assessment of the tax. Three things must exist for a lien to come into existence:

  • the assessment of the tax liability
  • the demand for payment and
  • the refusal or neglect to pay it

How the IRS enforces a lien

It is crucial to understand the two serious points:

  • First, the IRS lien is a prerequisite for any enforcement action the government takes. Except for jeopardy situations, the IRS generally has no authority to enforce collection until the three requirements listed above have been met.
  • Second, courts often must deal with these issues, especially when other liens compete with the IRS for the taxpayer’s assets, so be prepared for the possibility of going to court over the issue if necessary.

If you chose to contest the lien, you need an expert tax attorney on your side. The tax code states that the lien will continue until the assessed tax is satisfied or becomes unenforceable due to the lapse of time. The statute of limitations is 10 years after the assessment date.