Whenever a debtor cannot pay a debt, the creditor may secure payment through a claim or charge on the debtor’s property. That claim or charge on a property is called a lien. However, by itself, the lien does not transfer the debtor’s property to the creditor. Rather, the lien gives the creditor the ability to perform a levy and secure repayment from the sale proceeds or money seized.
A tax lien gives the government a similar ability. The government’s claim or charge on a taxpayer’s property for the payment of a tax debt does not deprive the delinquent taxpayer of his property. The tax lien exists whenever the IRS makes an assessment, sends notice and demand, and the taxpayer neglects or refuses to pay. The government only obtains possession or custody of property when the IRS actually seizes the property or serves a notice of levy.
The IRS may choose not to record the tax lien immediately so that the government’s claim is not a matter of public record. The IRS’ policy is not to file a notice of lien until reasonable efforts have been made to contact the taxpayer and allow him to make payment. When we speak of reasonable efforts, it will constitute the issuance of the statutory assessment notice and the balance due notices sent during the collection process.
The IRS does not file an NFTL outright on the belief that filing it adversely affects the taxpayer’s ability to pay his tax due and hampers the collection process. Although the IRS still has the prerogative to file a notice of lien without exploring collection alternatives with the taxpayer, filing an NFTL does not violate the taxpayer’s rights. In addition, the NFTL does not need to be filed in the public records to exist. However, the notice protects the IRS against competing creditors, such as purchasers, security interest holders, mechanic lienholders, and judgment creditors.
The Effect of Filing A Notice of Federal Tax Lien
The notice of lien filed against a delinquent taxpayer hurts the taxpayer’s opportunity to acquire the means to pay his tax liability. When the IRS files notice of lien and subsequently acquires a taxpayer’s property, the property will be subject to the tax lien. Any claim that the taxpayer has will be paid out of the property in a position subordinate to the tax lien. Consequently, careful prospective creditors or transferees will check whether a tax lien is on file in the appropriate office. If a lien is on file, they will not deal with the taxpayer. Hence, the taxpayer losses a means to pay a delinquent tax.
When the IRS files a Notice of Federal Tax Lien, the taxpayer should consult with a tax lien attorney to determine whether the lien can be removed or withdrawn. In some cases, a tax resolution strategy can help the taxpayer repay tax obligations or resolve tax debt without an actual levy.