Did you know that Federal Tax Liens are a matter of public record? This means if you owe the IRS money, a a federal tax lien is issued against you, it can wreak havoc on your life! Here is an example: Since the lien is filed within the County Clerk’s office of your county of record, if you have a business that operates within a the same community, these records will show up on your credit report.
When an IRS Federal Tax Lien shows up on your record, it can be very hard to obtain financing on a car or a home purchase. It also can affect your personal property such as existing vehicle loans as well as real estate. In fact, once a Federal Tax Lien is filed against your property, you won’t be able to sell or transfer the property without a clear title. Consequently, if you’re one of the taxpayers under the thumb of an IRS lien, you may find yourself in a situation where you have property that you’d like to borrow against, but the Federal Tax Lien is standing in your way.
A Lien is a claim registered against property for non-payment of assessed taxes. Although it is registered against property, a tax lien does not deprive a taxpayer of his or her property but may affect the right to transfer property.
A Levy is a seizure. It is the obtaining of money that divests a taxpayer of property and transfers constructive ownership to the government.
The following are the various types of liens. They include: Consensual, Common Law, Statutory, General and Specific.
-Consensual Liens are imposed by a contract between the creditor and the debtor and can include, home mortgages, car loans and security interests.
– Common Law Lien is the right of one person to retain in his or her possession that which belongs to another until certain demands of the person are satisfied. An example: A hotel's lien on the belongings of a delinquent tenant.
-Statutory Lien arises against a taxpayer upon the assessment of a tax delinquency by the IRS. To initiate seizure, the lien must be filed in the Recorder of Deeds office.
– General Lien is a registered claim against all property of a debtor. Instead of attaching to just one property, the General Lien attaches to all properties owned by the person.
– Specific Lien is a lien affecting or attaching only to a specific piece of land or property as in most Consensual and Common Liens.
Liens are governed by Code Sec. 6321 ‘ If any person liable to pay a tax neglects or refuses to pay after demand, the amount shall be a Lien in favor of the United States upon all property rights.
What makes a Lien Valid? For a Lien to be valid, there must be a valid assessment which means the Taxpayer must have either neglected or refused to pay after demand. The IRS must make a demand for payment.
The federal tax lien attaches to all property belonging to the taxpayer starting on the date of the assessment. It also attaches to after-acquired property, plus the lien continues until the liability is satisfied or becomes non-enforceable.
As soon as a tax lien exists, the IRS must give the taxpayer 30 days notice before levying or seizing the taxpayer’s assets. Once the tax lien exists, the government becomes the taxpayer’s secured creditor and the government is entitled to payment before any other general or unsecured creditors.
Besides the fact that a tax lien can severely hurt the taxpayer’s credit standing, it can also interfere with the transfer of any property, especially where a paper title is necessary. This includes real estate and personal property, which is subject to recorded security agreements or UCC filings. The tax lien can either prevent a property from being transferred or it will follow the transferred property. Regardless if the transfer is up for consideration, gratuitous or even fraudulent, a valid retroactive disclaimer under state law of the beneficiary and even under a will won’t prevent the tax lien from attaching to the disclaimed property.
A release of a tax lien completely extinguishes the lien where as a discharge operates to discharge specific property to which the lien has attached.