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Know the Truth About Tax Liens

Federal tax liens are among the important tools (some taxpayers might say “weapons”) used by the Internal Revenue Service in collecting federal tax debt. Tax liens may be issued by the IRS when the following criteria have been met:

•  An assessment has been made by the IRS,
•  A demand for payment has been communicated to the taxpayer, and
•  The taxpayer has either neglected or refused to pay the outstanding tax liability.

IRS tax liens protect the federal government’s interest in all property – including real estate, personal property, and financial assets – that are owned by the taxpayer.

Tax Liens are Part of the IRS Review Process

Many taxpayers confuse tax liens with other IRS collection activities. Ordinarily, tax liens are issued when other efforts to collect taxes owed have proven unsuccessful. Prior to the issuance of a tax lien, the liability and financial condition of the taxpayer must be reviewed by an IRS supervisor.

Notice of Federal Tax Lien

The IRS files a public document – the Notice of Federal Tax Lien (“NFTL”)  – to alert other creditors that the federal government claims a legal right to the taxpayer’s property. In a manner somewhat like the filing of a mortgage or deed of trust, the NFTL is filed in the office of the county clerk or register of deeds and it becomes a lien against any real property as of the date so filed.

Practical Effects of the Filing of a Notice of Federal Tax Lien

As noted above, the filing of the NFTL operates as a secured claim against the taxpayer’s real estate and other assets (including personal property, bank account balances, stocks and securities, vehicles, etc.) and to future assets acquired during the duration of the lien. Because the NFTL is a serious claim against the taxpayer’s assets, it often has a negative effect on the taxpayer’s credit score and credit rating. In many cases, the taxpayer may not be able to borrow funds until the tax liability is appropriately handled.

Tax Liens Attach to a Taxpayer’s Business Property

Tax liens also attach to all business property owned by the taxpayer. If the taxpayer operates a business as a sole proprietor or is a partner in a business, the effect can be particularly significant, since cash and accounts receivable owned by the business are subject to the lien.

Tax Liens vs. Tax Levies

Taxpayers should understand that the filing of a NFTL is not a “levy.” In short, a lien secures the government’s interest in the taxpayer’s property when that taxpayer has failed to pay the tax debt. A levy takes or seizes the property to pay the outstanding tax debt. If the taxpayer ignores the NTFL, the IRS will continue its efforts to collect and may levy, seize, and sell any type of real or personal property that the taxpayer owns.

Don’t Stick Your Head in the Sand

The filing of a tax lien is a serious act on the part of the IRS and should never be ignored. The sooner a taxpayer faces the issue, the sooner it can hopefully be resolved. If you are sincere in settling the tax debt, contacting an experienced tax attorney is a good first step. Delay can be costly.

Mackay, Caswell & Callahan P.C. – Experienced New York Tax Attorneys Ready to Help

Do you owe back taxes? Have you been contacted by the IRS about an outstanding tax liability? Have you received a Notice of Federal Tax Lien? If so, you owe it to yourself to contact one of the Upstate New York tax attorneys or New York City tax attorneys at Mackay, Caswell & Callahan P.C. today. We have offices in Albany, New York City, Rochester, Syracuse, Utica, and Watertown. We have more than 30 years of experience handling all types of tax controversies, including federal tax liens.

We have helped numerous taxpayers with issues of back taxes and deficiencies. We also have extensive experience in audit representation, collection defense, civil tax litigation, and criminal tax defense. We are committed to achieving the best results for our clients as efficiently as possible, with straight talk and effective solutions. Call us or contact us using our online form.