Like many creditors, federal and state governments will protect a financial judgment against a person or business by putting a legal claim on property owned by the person or business. In the case of tax liabilities, the IRS calls such a claim a tax lien. Most states also call them tax liens, though some states call them tax warrants. A lien and a warrant are the same in this capacity. Liens and warrants may be filed on tangible property, such as homes and vehicles; intangible property, such as shares of stock; and future property, such as accounts receivable. Outstanding liens and warrants will damage credit with potential creditors and financial partners, and are usually only removed once the liability is paid in full. Please contact Larson Financial to get answers specific to your situation.
IRS Tax Liens
The IRS will protect a financial judgment against a person or business by putting a legal claim on property owned by the person or business. Liens give the IRS a legal claim to property as security or payment for your tax debt. A Notice of Federal Tax Lien may be filed only after:
- The IRS assess the liability;
- The IRS sends you a Notice and Demand for Payment – a bill that tells you how much you owe in taxes; and
- You neglect or refuse to fully pay the debt within 10 days after notified about it.
Once these requirements are met, a lien is created for the amount of your tax debt. By filing notice of this lien, your creditors are publicly notified that we have a claim against all your property, including property you acquire after the lien is filed. This notice is used by courts to establish priority in certain situations, such as bankruptcy proceedings or sales of real estate.
The lien attaches to all your property (such as your house or car) and to all your rights to property (such as your accounts receivable if you are a business).
The statute of limitations under which a Federal tax lien may become “unenforceable by reason of lapse of time” is found at 26 U.S.C. § 6502. For taxes assessed on or after November 6, 1990, the lien generally becomes unenforceable ten years after the date of assessment. For taxes assessed on or before November 5, 1990, a prior version of section 6502 provides for a limitations period of six years after the date of assessment. Various exceptions may extend the time periods.
Tax Liens: The Tax Code
Internal Revenue Code Sec. 6321: LIEN FOR TAXES
If 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, belong to such person.
Internal Revenue Code section 6322: PERIOD OF LIEN
Unless another date is specifically fixed by tax code, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed (or a judgment against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by reason of lapse of time.