Federal Tax Liens

The IRS may choose to file a lien on a person's property who has failed to pay on a tax obligation. A tax lien is an encumbrance on the debtor's property that secures the government's interest in the property for the amount of the debt. Those having tax troubles should be aware of the effects a tax lien, particularly how tax liens affect homes, and how to discharge a tax lien.

Effects of a Tax Lien

After the IRS determines that a person owes taxes and has not paid, the IRS notifies the person of his or her obligation. If the person still does not pay, the IRS will file a Notice of Federal Tax Lien, a public document announcing the government's right to the person's property.

A tax lien can impact many facets of a person's life. The lien attaches to all of the person's assets, including real estate, personal property and financial accounts. It will also attach to assets a person acquires in the future, as long as the lien exists. A tax lien may affect a person's ability to obtain credit, such as a mortgage or auto loan. Additionally, if a person files for bankruptcy, the tax lien may survive the bankruptcy debt discharge.

Tax Liens on Homes

If there is a tax lien on a home, the homeowner must satisfy the lien before he or she can sell the home or refinance it. Many homeowners pay the amount they owe out of the proceeds of the sale of the home, but if the lien is greater than the sale amount the homeowner may request the IRS discharge the lien so the sale can go through. The homeowner may also request that the IRS make the lien secondary to a mortgage lender's claim if the owner is trying to refinance.

Eliminating a Lien

The easiest way to eliminate a tax lien is to pay the amount that a person owes. However, if that is not feasible, there are options for eliminating a lien on a particular piece of property. A person may request a discharge of a particular piece of property to allow for the sale of the property free of the lien.

A person may also ask the IRS to subordinate (assign a lower priority to) its interest in a piece of property to another creditor, such as a mortgage lender. The lien still exists on the property, but the other creditor's interest is superior to that of the IRS.

Finally, a person may apply for a withdrawal of the lien, so that there is no more public notice of the lien to other creditors announcing the government's interest in the property.