Tax Lien Basics

Tax Lien Basics

Richard Fonfrias, J.D.
Chicago’s Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC


Definition: Tax Lien

A tax lien is a claim on your home or other real estate that is put there when you don’t pay the taxes you owe. This can mean taxes owed by a person or business.

A tax lien does not force the seizure of your property; it simply means the government has first priority to money from the sale of your property over other creditors. A tax lien remains on your property until the taxes have been paid, the statute of limitations expires on the debt, or if you meet the new IRS Fresh Start Initiative requirements if the tax lien was placed there by the IRS.

How A Tax Lien Is Filed

Filing a tax lien on your property is not the first step in the process. In fact, many other steps occur before a lien is filed. Here is the process the IRS and some other taxing authorities follow:

  • You learn the amount of tax you owe when you prepare and file your tax return or when the taxing authority files a substitute return
  • The taxing authority sends a tax bill demanding payment to your last known address
  • You do not pay the tax bill within the allowable time period

When those three conditions are met, the IRS may file a Notice of Federal Tax Lien. This tells other creditors that the federal government has a claim on your property.

The Tax Lien’s Impact

After the tax lien has been filed, it appears in your credit report. This makes it hard for you or your business to get future credit or loans of any kind. In most cases, it has an immediate impact on your credit score. The fact that the tax lien exists causes migraines for other lenders because IRS or other taxing authorities get first claim on assets over all other lienholders.

How A Tax Lien Is Released

After the tax has been paid, the lien is released and the county records will be updated to show that the IRS or other authority has no legal claim to your property. This does not remove the entry from your credit report, where it can remain for up to ten years.

After the lien is released, you will find that it’s easier to get credit because the taxing authorities no longer have a legal claim on your property. IRS’s Fresh Start Program has recently made it easier for you to get liens released, as follows:

  • Direct Debit Installment Agreement: IRS will consider removing the tax lien if you set up a direct debit payment plan. This plan takes money from your account monthly and applies it to the outstanding tax debt.
  • If the IRS filed the tax lien incorrectly, then they will release it.
  • If the statute of limitations has passed on the debt, then IRS will release the lien.

After the lien has been released, you will receive a copy of the lien release. You can then send it to the credit reporting bureaus so they can update your credit report.