Understanding a tax lien: What you can do to help yourself

If the first time you see a tax lien is a surprise, then you're probably not sure what it means for your future. The good news is that tax liens are fairly easy to understand.

A tax lien is essentially the state or federal government making a legal claim on your assets as a result of not paying your property taxes or being delinquent paying your federal or state income taxes.

How do tax liens affect you?

Tax liens can affect your credit score. Since you failed to pay a tax debt, it will appear on your credit report. It means that others can see your tax lien when you apply for mortgages or loans. If the lien is against your property, the state or government could sell it to recoup the amount that you owe in tax debt.

How long does the IRS have to pursue a claim against you for a tax debt?

The Internal Revenue Service (IRS) has only 10 years to try to collect taxes from you. The statute of limitations begins when the tax is assessed and continues for the next 10 years. There are exceptions, however, so if you owe back taxes, you would be wise to discuss your options for paying it back or waiting out the statute of limitations.

What should you do if you find a tax lien on your credit report?

You'll need to be cautious when deciding what to do next. If you contact the IRS, you could end up making the situation worse. Perhaps your situation is under the radar right now, and cold-calling the IRS without a repayment plan in place could just make a problem for yourself. Instead of doing that, you may want to discuss your options with a tax professional.

Tax liens stay on your credit for up to seven years following your payment. However, the Fresh Start initiative does allow consumers to remove the tax liens from their credit reports sooner in some cases. The requirement is generally that you'll have to be in an installment agreement or have paid off the bill in full. If that's done, then there's a chance to clear the lien from your credit quickly.

Always remember that the IRS has the right to place a lien on your property within 10 days of notifying you of taxes owed. If you owe taxes, do what you can to pay off that debt quickly, because the IRS is persistent when it comes to collections.

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