What is an IRS Lien?

When the IRS assesses a tax against a taxpayer (income, payroll or other tax) a lien automatically arises by law to secure the payment of the tax.   If the tax remains unpaid, the IRS will almost always record the lien at the Courthouse in which the taxpayer lives or owns property.

 

 

This lien affects all property of the taxpayer, not only real property; however, the IRS will not seize the taxpayer’s home or other property as a result of this Lien.  It is public notice that the taxpayer owes money to the IRS and if the taxpayer sells property, the buyer should pay the IRS what is owed before giving any money to the taxpayer.

You can think of a lien in terms of a mortgage.  A mortgage is an encumbrance on your property that gives the public notice that you owe the bank money.  If you sell the property, the bank gets its money back before you get any money.  Likewise, if you do not pay the bank, it can start legal proceedings, called foreclosure, to take your home.  Otherwise, the mortgage just “sits” at the courthouse and no action flows from it.

In the same way, when an IRS lien is filed, it gives public notice that you owe the government taxes that you have not paid.  This creates a “cloud” on your title.  If you decide to sell your home, the closing attorney will search your title and when he finds the lien, it is notice to him that the IRS must be paid from the proceeds of the sale before you can get any money.  This filing also negatively affects your credit rating.  The fact that a lien has been filed is a warning that a levy may follow, which is much more serious.