Understanding tax liens and how they can affect you

If you own an asset and you also owe someone money, that person may be able to place a lien on that asset. A lien is a legal claim that helps to guarantee that you will pay your obligation.

For example, if you hire a contractor to remodel your kitchen and you have yet to pay the bill, the contractor may place a lien on your home. This can prevent you from selling your home (until the lien is paid), and it can potentially make it difficult to refinance or acquire an equity line of credit.

The problems with tax liens

The IRS has the right to place a tax lien on your assets if you get behind on your taxes. Unlike other liens, which attach to specific pieces of property like a home, a tax lien may affect all of your assets. Tax liens can be a big deal, requiring the assistance of a tax lawyer.

The tax lien process

Before the IRS levies a tax lien against you, it will first assess your debt and then inform you of the debt and your obligations to pay it. If you receive a notice from the IRS about a tax debt, you may still have some room to negotiate payment terms with the IRS, helping you to avoid the lien. If the notice and demand of payment goes unanswered and you do not work out an arrangement to pay it, then a tax lien can bring the rest of your financial world grinding to a halt.

Dealing with a tax lien

If you already have a lien assessed on your assets, take steps to address it right away. The simplest way to do so is to gather all your resources and pay it off as soon as you can. However, if you have assets but are cash poor, this may prove challenging, because the lien will prevent you from selling off certain assets.

The IRS provides a number of options for those with tax liens, including:

  • Applying to have the lien notice withdrawn
  • Applying to receive a certificate of subordination
  • Filing for a discharge of your property

Don't wait to address your lien

The longer you wait to deal with a tax lien, the greater your problem can be. If you are facing a tax lien or already have one, seek the assistance of an experienced tax lawyer.

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