Federal Tax Liens: When They’re Created and Released

Most taxpayers know that the IRS can put a lien on real and personal property to collect unpaid tax debt, but few understand what happens after the lien is created and encumbers property. Here, we’ll discuss the basics of a Federal Tax Lien, including how they’re created and what happens after they encumber real and personal property.

Definition

Black’s Law Dictionary defines a lien as a charge or encumbrance that one person has on the property of another as a security for a debt or obligation. A Federal tax lien is a statutory lien as it is created by statute and a general lien as it applies to all property of the taxpayer, not just specific property.

When Is A Federal Tax Lien Created

A Federal Tax Lien is created when “any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.” (IRC Section 6321).

When Does Someone “Neglect or Refuse to Pay” A Tax?

For purposes of Federal Tax Liens, someone neglects or refuses to pay a tax when they fail to pay the entire amount of tax due after demand. In practical terms, a failure to pay occurs when the taxpayer fails to pay the full amount owed after receiving notice demanding payment from the IRS.

What Property Does A Federal Tax Lien Attach To?

A Federal Tax Lien attaches to all property of the taxpayer. Moreover, it attaches to the taxpayer’s property even after that same property is transferred by sale or otherwise.

When Is A Federal Tax Lien Released?

A Federal Tax Lien is released after the liability (including interest) is satisfied or becomes legally unenforceable, or a bond securing payment is accepted by the IRS. (IRC Section 6325) For most taxpayers, the scenarios in which the tax lien is released will be either the expiration of the 10-year statute of limitations on collection or repayment in full.

Do You Need A Tax Attorney To Deal With A Tax Lien?

The answer to that question depends on the circumstances. Certainly, legal representation from a tax attorney can help in most instances, especially when repayment is not possible. Many tax resolution attorneys offer free consultations and can help taxpayers better understand the statute of limitations applicable in their case and evaluate whether or not tax resolution options such as an offer in compromise are viable.