The IRS files a tax lien when a taxpayer (individual or business) fails to pay their tax debt after the agency has assessed the tax, sent a bill, and not received payment. This lien protects the government’s interest in the taxpayer’s current and future assets until the debt is satisfied.
It’s really important to know when and why the IRS might file a tax lien, so you can avoid serious financial problems. At this stage, seeking help from an experienced tax attorney can significantly improve how your case is handled and protect your best interests.
At Victory Tax Lawyers, our experienced tax attorneys and enrolled agents have helped individuals and small businesses successfully negotiate with the IRS in matters involving tax liens, levies, payroll tax issues, and Offers in Compromise. Contact us for professional guidance tailored to your situation.
In this article, we explain the reasons for receiving an IRS tax lien notice. We also outline practical steps for handling a federal tax lien, whether you are an individual taxpayer or a business owner.
What Is an IRS Tax Lien?
An IRS tax lien, also known as a statutory lien or silent lien, is a legal claim the Internal Revenue Service (IRS) places on your personal property when you owe unpaid federal taxes. If the IRS determines that you owe back taxes, whether from a tax return, audit, or other tax assessment, it sends you an official notice called a “Notice and Demand for Payment.”
This notice, also known as the CP14 tax bill, is usually sent by mail and lists how much you owe, when payment is due (typically 21 days), and how to pay. It also explains any penalties or interest charges that may continue to accrue if the balance remains unpaid.
A federal tax lien can have significant financial consequences for you as an individual or as a business owner. It can appear on your credit and loan report, making it harder for you to secure loans, obtain a mortgage, or open a business line of credit.
When an IRS tax lien is attached to your business property, it also applies to future assets or property you acquire. This makes it difficult to sell or refinance because buyers and lenders usually won’t proceed until the lien is released or settled by the IRS.
Tax Lien VS Tax Levy: What’s the Difference?
A tax lien is a legal claim the IRS has on a taxpayer’s property after they fail to pay owed taxes following proper notice. The IRS can then file a Notice of Federal Tax Lien (NFTL) with the state and local jurisdictions, alerting other creditors who must consider the lien when extending credits or financing. However, a tax lien does not mean the IRS seizes your personal property; it simply secures the government’s right to it.
In contrast, an IRS tax levy represents an enforcement action. A levy occurs when there’s an asset seizure by the IRS to satisfy the tax debt. Before issuing a levy, the IRS must send a Final Notice of Intent to Levy, giving you the chance to pay the balance or request a hearing.
Under a tax levy, the IRS can withdraw funds directly from bank accounts, garnish wages, or seize and sell physical properties, such as vehicles, real estate, or business equipment. The main difference between a tax lien and a tax levy lies in their purpose and impact. A tax lien serves as a warning, a legal claim protecting the government’s interest in a taxpayer’s home or property, while a levy is the actual collection action used to recover unpaid tax debt.
When Will the IRS File a Tax Lien?
The IRS generally files a federal tax lien when a taxpayer owes a substantial amount of tax. This usually happens when the taxpayer fails to respond to multiple notices to resolve the debt.
Missed Payment After IRS Notice
This situation occurs when you miss the payment deadline stated in the Notice and Demand for Payment. If you don’t respond in time, the IRS will send several warning notices, such as CP501, CP503, and CP504, before taking enforcement actions. Continued nonpayment can result in a Notice of Federal Tax Lien from the IRS.
Small Business Unpaid Payroll Taxes
Payroll taxes refer to the federal income tax, Social Security, and Medicare contributions that employers withhold from employees’ wages. These withheld funds are meant to be remitted to the IRS to cover each employee’s tax liability. If a business fails to remit these payments, the IRS treats it as a trust fund violation and may file a tax lien against the company.
Taxpayer on an Installment Plan Who Defaults
When a taxpayer enters into an installment agreement with the IRS but misses payments, the IRS considers the agreement in default. If this happens, the IRS may terminate the payment plan and file a Notice of Federal Tax Lien. In more serious cases, it can also issue a levy on wages, bank accounts, or other business property.
How the IRS Files a Tax Lien
The IRS assesses your tax liability and sends a Notice and Demand for payment to the individual or corporate entity that owes the debt. It then waits for a response. This tax assessment usually occurs when you file a tax return showing a balance due or after an IRS audit determines that additional taxes are owed.
If you fail to pay or secure payment arrangements after receiving the notice, the IRS will send additional reminders. If there’s still no action, the IRS will file a Notice of Federal Tax Lien (Form 668(Y)) to protect its claim on your property. Because this document is filed with the county recorder’s office or state filing agency where you live or own property, it becomes a matter of public record.
Statute of Limitations on IRS Tax Lien
The IRS has 10 years from the assessment date to collect your tax debt, penalties, and interest. Once the 10-year collection statute expiration date ends, your tax debts and any related lien expire as well. This timeframe is governed by the Collection Statute Expiration Date (CSED). However, certain circumstances can extend or pause this period, such as filing for bankruptcy, submitting an OIC, or requesting a CDP hearing.
Solutions for Individuals and Small Businesses Facing a Lien
Understanding your legal and financial options when faced with an IRS tax lien can help you protect your financial assets.
1. Seek Professional Assistance
Dealing with an IRS tax lien can feel overwhelming and complex, especially if you’re unsure which resolution option fits your situation best. Reaching out to a qualified tax professional, such as a Certified Public Accountant (CPA), Enrolled Agent (EA), or tax attorney, can make a significant difference in how efficiently your case is resolved.
A professional can review your finances and determine whether you qualify for an Offer in Compromise, a payment plan, or a lien withdrawal. They will also communicate directly with the IRS to prevent costly mistakes.
2. Set Up a Payment Plan
If you can’t pay your tax debt in full, you can apply for an installment agreement with the IRS. This program helps individuals and small businesses repay their balances through manageable monthly payments.
In 2024, the IRS collected over $16 billion through installment agreements, an increase of 12% from the previous year. Once your payment plan is approved, the IRS suspends most collection processes, and no new tax lien will be filed as long as you stay compliant.
3. Offer in Compromise (OIC)
An OIC allows you to settle your tax debt for less than you owe if the IRS approves your request. To apply, submit Form 656 and the appropriate financial disclosure form, Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses. These forms provide the IRS with details about your income, expenses, assets, and liabilities to calculate Reasonable Collection Potential (RCP).
4. Request a Lien Withdrawal
A lien withdrawal can help individuals and businesses minimize the negative impact of a filed tax lien while they work to resolve their tax obligations. This process allows you to have an NFTL filing removed from public notices. To qualify, you must meet certain conditions, such as making full payment of tax debt, having a payment plan under $25,000, or proving that the lien causes financial hardship.
To request a withdrawal, submit Form 12277 (Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien) to the IRS office that filed your lien. Once received, the IRS reviews your application and, if approved, removes the lien from the public record.
5. Appeal or Request a Collection Due Process (CDP) Hearing
A CDP hearing allows you to appeal an IRS lien or levy before enforcement begins. You can use this process to dispute the lien, propose alternative payment options, or show that the IRS made an error.
To request a hearing, file Form 12153 within 30 days of receiving your lien or levy notice. While your case is under review, the IRS temporarily halts all collection efforts. During the hearing, an independent IRS Appeals officer reviews your case and helps determine a fair resolution.
6. Stay Current on Taxes
Staying current on your taxes means that while you work to resolve past debts, you must also file all required tax returns and pay new taxes on time. Failing to stay compliant can cause the IRS to default your payment agreement, reinstate penalties, or even re-file a tax lien against you.
7. Monitor Your Credit and Property Records
After a tax lien is filed or released, it’s important to monitor your credit and property records to ensure the lien’s status is correctly updated. Although the IRS no longer reports tax liens directly to credit bureaus, liens remain public records and may still appear in background checks or affect financial transactions. You should perform regular checks on your credit reports, county recorder’s office, or public record databases to confirm that all lien releases or withdrawals have been properly recorded.
Need to Resolve Your Unpaid Tax Debt Fast?
Dealing with unpaid tax debt can feel overwhelming, especially if we are in a difficult financial situation. However, understanding how and when the IRS files a tax lien can help you take the right actions before significant consequences occur. An IRS tax lien doesn’t appear immediately; it follows missed payments and multiple ignored notices.
Once filed, a lien can restrict your ability to borrow, sell property, or protect your assets. The best way to avoid a lien or minimize its impact is to maintain open communication with the IRS, respond promptly to notices, and be transparent about your financial affairs. If you’re uncertain about your next steps, reach out to a qualified tax professional.
FAQ
Here are some common questions people ask about IRS tax liens:
Can the IRS File a Lien Immediately After Missing a Payment?
No, the IRS cannot file a lien immediately after you miss a payment. The agency must first assess the tax debt and determine the exact amount owed, and send you a Notice and Demand for Payment. This notice typically gives 21 days to pay (or 10 days for larger businesses).
If you don’t respond, the IRS sends additional reminder notices, offering several opportunities to pay or set up a payment plan. If all notices are ignored, the IRS then files a federal tax lien on your property.
How Long Does the IRS Lien Stay on My Record?
An IRS tax lien remains on your record until your tax debt is fully paid, either through an Offer in Compromise (OIC), full payment, or, in rare cases, a bankruptcy discharge. Once the debt is cleared, the IRS must release the lien within 30 days by filing a Certificate of Release of Federal Tax Lien.
Can I Negotiate With the IRS Before a Lien Is Filed?
Yes, you can negotiate with the IRS before a lien arises by requesting a payment plan, Currently Not Collectible status, or an Offer in Compromise to resolve your tax debt.
What Happens if I Ignore a Tax Lien?
Failing to address a tax lien can result in severe financial consequences. It restricts your property rights, meaning you cannot sell, refinance, or transfer property without paying your tax debt. A federal tax liens exist in public records, which lenders, business partners, and creditors can access, potentially harming your financial credibility and reputation.
What Happens if I Make a Mistake on Form 433-A?
If you make a mistake on Form 433-A, the IRS may contact you for clarification. Minor errors, like entering the wrong account number or missing a small expense, can easily be corrected. However, intentional mistakes, such as underreporting income or hiding assets, can result in denied payment plans, additional penalties, or even a fraud investigation. Get an attorney before you file a Form 433-A to avoid making any costly mistakes.
Can I Submit Form 433-a for a Joint OIC with My Spouse?
Yes, you can file a joint OIC with your spouse using Form 433-A (OIC) if you owe taxes jointly. Both spouses must provide complete financial information, including income, assets, and expenses, so the IRS can fairly assess your combined ability to pay.
How Long Does the IRS Take to Process My Offer in Compromise?
The IRS usually takes about six to nine months to process an Offer in Compromise after receiving your application. However, complex cases or incomplete submissions can take up to a year or longer to review.
Can I Apply for OIC if I Can’t Pay My Taxes at All?
Yes, you may apply for OIC even if you can’t pay your tax at all. Approval depends on whether you can prove financial hardship and show that full payment is not possible based on your income, assets, and expenses.
What Payment Options Are Available for an Offer in Compromise?
The IRS offers two main payment options under an Offer in Compromise, which include the Lump Sum Cash Offer and the Periodic Payment Offer. These options allow you to settle your tax debt in a manageable way while ensuring the IRS receives the maximum amount you can reasonably afford.
How Often Does the IRS Seize Property?
The IRS rarely seizes property. It does so only in cases where a taxpayer neglects the warning notices, the debt remains unpaid, or refuses to make payment arrangements.
How Long Does a Federal Tax Lien Last?
A federal tax lien generally lasts for 10 years from the tax assessment date.
What Does IRS Notice 1450 Mean?
IRS Notice 1450, titled Instructions on How to Request a Certificate of Release of Federal Tax Lien, explains the steps to remove a lien after you’ve paid your tax debt in full.
What Is a Release of Tax Lien?
A release of tax lien is the official removal of the federal government’s legal rights and claim on your property after your tax debt has been fully paid.
