What We Mean When We Say Lien

This time of year, unfortunately, many taxpayers receive a “lien notice” in their mailboxes. But, what does a lien even mean?

According to the IRS, a federal tax lien is the government’s legal claim against your property when you neglect or fail to pay tax debt. The lien protects the government’s interest in all your property, including real estate, personal property, and financial assets.

So, what does this mean? In laymen’s terms: you owe the IRS money. Until they receive their money (or approved payment plan) the lien will not be removed. Because liens are public documents, an alert will also be sent to creditors.

It should be noted that tax liens can be removed, but they should be taken very seriously. Here are a few ways that a tax lien can affect other aspects of your life.

Real Estate
If you are trying to refinance or sell your home, a tax lien will produce a big red flag for buyers. You will need to obtain a lien release, discharge, subordination, or withdrawal depending on your needs.

Penalties and Interest
The IRS interest rates and penalties can be very significant when it comes to tax liens. These fees will continue to accrue until the tax is paid in full or 25% of the total taxes owed are paid. Interest rates may vary, but according to Investopedia, the interest rate is 3% in the third quarter of 2020.

Your Spouse will be Affected
While you or your spouse may not oversee the finances, you both will be affected by a tax lien if you filed jointly. Louisiana is a community property state, and therefore holds both parties equally responsible for the tax bill.

You Have Options
While the IRS wants their money immediately and in full, taxpayers often have extenuating circumstances that don’t allow them to pay in full. Ask your CPA or tax attorney about resolution options. However, doing nothing should never be an option. Your penalties and interest can accrue, your wages can be garnished, or your financial accounts could be levied.

If you receive an IRS lien, see a tax professional immediately to discuss the options available to you.