IRS Tax Liens and Your Options

If you have a tax liability with the Internal Revenue Service (IRS), you should be aware of what a tax lien is.  A tax lien is a tool used by the IRS to enforce collection of an unpaid tax liability.  It allows the IRS to take your assets—your checking account balance, your cars, even your wages—in order to satisfy the money you owe to them.

So if the IRS has filed a tax lien against you or they are about to file one, what can you do?  Following are some of the options you can consider.

Allow the tax lien to expire.  A tax lien—even one filed against you by the IRS—does not last forever.  They can collect money under a tax lien for only ten years after the lien is filed.

However, this is a difficult option to pursue for addressing a tax lien.  If the IRS has not acted on enforcing the tax lien for a significant length of time, it may be because you have no property for them to seize, which is a difficult way to live.

Additional downsides of waiting for the tax lien to simply expire include that the IRS can file to extend the tax lien and that the lien may stay on your credit report indefinitely if you never pay any money to satisfy the amount you owe.

Declare bankruptcy.  Declaring bankruptcy technically will not remove a tax lien the IRS has placed on your property.  However, bankruptcy can be used to eliminate a tax liability in certain circumstances, which will prevent the IRS from garnishing your wages, taking your liquid assets such as money in a checking or savings account, or taking any other new property you acquire.

However, as the tax lien would still survive a bankruptcy on an property to which it was attached before the bankruptcy—such as a home possibly—the amount related to the tax lien would have to be paid if the property were ever sold.

Identify an error on the part of the IRS.  As with waiting for the tax lien to expire, identifying an error on the part of the IRS is not an easy method of addressing a tax liability and the associated lien.  An error would be some sort of problem with the way the IRS filed the tax lien such that the tax lien is not valid.  Errors might include the IRS failing to file the lien, the lien being recorded after the automatic stay related to a bankruptcy is in place, or the IRS filing the lien against the wrong piece of property, such as property that is not actually yours.

Pay the money you owe.  If you satisfy the tax liability you owe to the IRS, the IRS will release the tax lien.

You can satisfy the tax money you owe to the IRS in two ways.  First, you can pay the full amount you owe to the IRS, whether as a lump sum payment or by using one of the IRS’ payment plan options.  Second, you can attempt to prove that paying the full amount you owe to the IRS would create an undue burden and financial hardship for you, in which case the IRS will consider the liability satisfied in full by accepting a partial payment.  Keep in mind that convincing the IRS that paying the full amount will create a financial hardship is not an easy task.

To pursue any of the above options, you should speak with a tax attorney who is familiar with IRS tax liabilities and liens, as they will be able to provide guidance specific to your individual case.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.