Federal Tax Liens

What is a Federal Tax Lien? With all this talk of liens lately, we thought it would be helpful to give a little refresher.

The Federal Tax Lien (FTL) is just one of the many collection tools used by the Internal Revenue Service (IRS) to collect past-due taxes. The FTL secures the IRS’ interest in taxpayers’ property without actually seizing and selling the property on the spot.  A tax lien technically attaches to all the taxpayer’s property, whether real or personal, and the IRS may choose to enforce its lien rights at the time the property is sold.  In practice, however, the FTL usually only affects rights to real property, or personal property of extraordinary value. The FTL is considered a “passive” collection tool. In contrast, bank levies, wage garnishments, and property seizures are all active collection tools.

Under new IRS guidelines, a Federal Tax Lien should not be filed unless the amount owed is $10,000 or more, although circumstances may warrant that a lien be filed on amounts less than $10,000.  Normally a tax lien will not be released until the tax liability has been fully satisfied.  However, a tax lien can be released by entering into a Direct Debit installment agreement as long as the total balance is $25,000 or less.  The IRS will also release a FTL if the taxpayer can convince the government that releasing the lien will facilitate collection of the tax or that it is otherwise in the best interest of the government.

Although tax practitioners and the Taxpayer Advocate Service have cast serious doubt on the effectiveness of the Federal Tax Lien as a collection procedure, it is still widely used and widely feared to this day.

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