I find that many people get confused about the difference between IRS liens and levies.
There isn't a week that goes by that I don't get a frantic call from someone stating the IRS is placing a lien on them. The caller is usually frantic and wants to know when the IRS is coming to take their property. Either a member of my staff or I has to calm them down and then explain the difference between liens and levies.
When you owe the IRS tax debt, the IRS has a right, by law, to tie up your assets. The definition of assets in this sense is anything that you own, whether it is your home or your stamp or gun collection. The law allows the IRS to use a lien to tie up your property. Of course, they don't tie it up with a rope. They just let the world know that you owe the IRS money and that if you sell anything, the IRS has a right to the money paid for it.
By law, the IRS has a lien on your assets from the second that you owe taxes. But, nobody will know about it until the IRS takes formal steps to let the world know that they have a lien. They do this by sending you a letter notifying you that they are going to file a lien in the county where they think you own property. It is usually the county you live in, but they could file in all counties where you own property.
You can appeal the filing of the lien to the IRS Appeals Division if you do so within the time limits that set out in the notification letter. Usually, the IRS will go ahead and file the lien so the world will know about it even while you go about appealing the filing.
Most of the time, appealing the filing of the lien is a waste of time, but there are a few instances when it would be to your benefit to file an appeal.
It would be beneficial for you to talk to a knowledgeable tax lawyer to determine if an appeal would be helpful.
Typically, tax lawyers are the most knowledgeable about tax liens. Tax lien law can be quite complicated and may necessitate a more in-depth knowledge of corporate, business, divorce or real estate law.
Once the IRS files the lien in your county recorder's office, it is there for the whole world to see. This may be damaging to your credit.
Tax liens are most harmful when you sell your home, other real estate or your business. An escrow company or a lawyer, when doing a preliminary title report, will find the recorded lien. They will then hold the sale money in an escrow account and pay the IRS for your tax debt.
There are situations in which you could get the IRS to either release, subordinate or remove the lien from your property.
These actions require making formal requests to the IRS under the appropriate tax law and the IRS regulations.
WARNING: If you sell an asset that has a tax lien on it without taking any action to deal with the lien as stated in the last paragraph, the lien will follow the property to its new owner.
If the new owner later finds out that there is an IRS tax lien on the property, you may very well have a lawsuit on your hands. This situation could cause a legal problem with the title to the property that may not surface until years later. This situation could come back to haunt you when you least expect it.
Tax liens stay on your record until you pay your tax debt in full or complete any remedy you have negotiated with the IRS.
The IRS has ten years from the time of assessment of the tax to collect the tax. If they cannot collect it within that time, the tax debt disappears from the IRS computers. The IRS will also release all liens.
Also, if you file a Chapter 7 bankruptcy with a tax lien in place, it may not go away even after discharge of the taxes. This situation could have dire consequences even a long time after your bankruptcy.
Dealing with tax liens is not a do-it-yourself project. Even many accountants and enrolled agents have insufficient knowledge of the traps hiding within federal tax lien laws. If you have a problem with a federal tax lien, you absolutely should seek out the help of a good tax lawyer.