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What is the effect of a federal tax lien?

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    Once the IRS files a Notice of Federal Tax Lien (NFTL), the taxpayer’s mailing address, tax periods with balances due, and the amounts owed to the IRS become public record. Therefore, tax liens can have a significant negative impact on a taxpayer’s credit rating. Once the tax lien shows up on a taxpayer’s credit report, a taxpayer may have a difficult time obtaining a loan from a financial institution to purchase a car or a home, get a credit card, or even sign a rental lease agreement. The tax lien will show up in the credit history for the next 7 to 10 years.

    Many taxpayers who own real property and want to either sell or refinance the real property are faced with the fact that they must address the federal tax lien. In terms of the sale of real property, the lien must be removed from the real property so that the new buyer receives clear title, but the lien may remain against the taxpayer. It all depends on whether the taxpayer can full pay the tax liability or not with the proceeds from the home sale.

    If a taxpayer wants to refinance in order to reduce their monthly mortgage payments, they must request from the IRS that the lien be subordinated to allow the first mortgage lender to be paid in full and the second mortgage lender to take first place. However, if the refinance results in the taxpayer receiving some proceeds, the IRS will want the proceeds in exchange for subordinating the tax lien.

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