Federal Tax Liens: What They Are and What To Do

A federal tax lien is the government's legal claim against your property when you owe a tax bill and have not paid it.

The claim can reach the things you own now and the things you acquire while the lien is in place, such as a house, land, a vehicle, a business asset or a bank account.  A lien is not the same as the government taking the property.  It is a claim that sits ahead of other creditors in many situations, and it becomes a problem when you try to sell or borrow against what you own.

A lien usually follows a bill, a reminder notice and a final notice.  If a balance stays unpaid, the IRS may file a public document called a Notice of Federal Tax Lien.  That public filing is what most people mean when they say "there is a tax lien on me."

A filed lien can make it harder to sell property, refinance a mortgage, get a loan or finance a vehicle, because the lender or buyer sees the government's claim.

The effect on a credit report has changed over the years, and the credit bureaus set their own practices, so we do not promise how a lien will or will not show up for you.  What we can say is that a lien is public information, and lenders and title companies often find it during a search.

For a business, a lien can reach business assets and may complicate loans, equipment financing or a sale of the company.  If the debt comes from unpaid payroll taxes, it can also raise questions about your payroll taxes, so it helps to get the whole picture reviewed together.

• Selling a house or land: the buyer's title company will usually want the lien dealt with at closing.
• Refinancing: lenders often require the lien to be resolved or moved behind their loan first.
• Borrowing or financing: a lender may decline or ask for more information.
• A business: assets and receivables may be included in the claim.

Do not ignore it.  Read the notice, keep a copy and respond before the deadline printed on it.

A notice about a lien often gives you a limited window to ask for a hearing or to act.  That window is short, and missing it can limit your choices.  Notices also come from state agencies, so check whether the letter is from the IRS or from the Alabama Department of Revenue.  Our guide on what to do when you receive an IRS notice walks through the first steps.

Be careful with scams.  The IRS first contacts people by mail.  If someone phones and demands immediate payment by gift card or wire, that is not how the IRS works.  Never send your Social Security number or documents through our website; bring them to the office or call us.

• Keep the envelope and the notice, and note the date you received it.
• Gather your recent returns and any earlier notices about the same balance.
• Do not sign or agree to anything you do not understand.
• Call the office before the response deadline passes.