What does it mean if you have a tax lien?
If you owe back taxes and the IRS socks you with a federal tax lien, here’s what could happen next.
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Your creditworthiness could take a nosedive. Tax liens may not appear on credit reports anymore, but the IRS can still file a public notice of the tax lien, telling creditors the government has a right to your property. That could jeopardize your ability to get a loan, says David Klasing, a CPA and tax attorney in Irvine, California.
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It can jeopardize a home sale or refinancing. Tax liens often surface during title searches. If you have equity in a house you’re trying to sell or refinance, you’ll likely have to use some of it to pay your taxes in order to close.
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It can cost you a lot of time. The IRS funnels many overdue taxpayers into its automated collection system, or ACS, which can mean spending hours on hold with the call center, Klasing warns. Some taxpayers might be assigned to a revenue officer, which could mean in-person visits, he adds.
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You can end up with a tax levy. If you don’t pay your back taxes after the IRS files a federal tax lien, the IRS may then issue a Notice of Intent to Levy.
News alert: On February 9, 2022, the IRS announced that it would be suspending certain automated notices and letters — including unfiled tax return notices, balance due notices, and intent to levy notices — while it worked through a backlog of unprocessed returns. The suspension is meant to prevent confusion for those taxpayers who may have resolved or taken steps to resolve tax issues but are still receiving notices due to their returns being unprocessed. As of the date of this article, there has been no formal announcement about when the notices will resume, but the agency does warn taxpayers who currently have outstanding prior-year filing requirements or outstanding taxes due to resolve the matters quickly because interest and penalties will continue accruing.
