General Questions

A Federal Tax Lien ("FTL") is the government’s legal claim against property that you own. IRS (Internal Revenue Service) liens are placed to collect past-due income taxes. When you neglect to pay or fail to pay a tax debt that you owe, the government can claim all your property. A federal tax lien is an encumbrance against all property and rights to property of the taxpayer, something akin to a bank's mortgage on a house or a lien on a car, except that it encumbers everything owned by the taxpayer, including the cash in his wallet, the clothing he wears or keeps in his closet, the furniture in his house, the chewing gum in his pocket, and even the false teeth in his mouth. And it is non-consensual. That is, while a person may grant a bank a mortgage on a house in order to get a loan to buy it, or a lien on a car, the federal tax lien arises without regard to the taxpayer's permission or consent.

A federal tax lien occurs after the IRS has assessed your liability, sends you a bill explaining how much you owe (Notice and Demand for Payment), and if you have defaulted on your Installment Agreement (IA), whether you neglect to pay the debt or refuse to fully pay the debt within a 10 day period. Incidentally, inability to pay the debt after the notice and demand, is considered neglect or refusal to pay for the purpose of the general tax lien. The statute of limitations for collection of the tax on which the lien arises is 10 years from the date of the assessment of the tax.
Once you have defaulted on your payments, the IRS will file a public document called a Notice of Federal Tax Lien to alert your creditors that the government has a legal right to your property. Paying your debt is the only way to get rid of your tax lien. Once paid, the IRS will release your lien within 30 days after paying off your debt.

There are several different options when it comes to paying off your debt. One option is called a Tax Lien Subordination. This option does not remove the lien, but allows the creditor to refinance or get a loan modification, which would be in the government's best interest because the IRS receives funds from the refinancing (you borrow more than needed to pay off the prior loan), or the interest rate is lower resulting in lower loan payments so you can make larger installment payments. The IRS is merely giving you a little more wiggle room so you can find the money to pay them, especially if your home is one of your few assets.

There is no guarantee that your request for subordination will be granted, especially if the IRS determines that you can pay then without making any changes to the mortgage on the property. Otherwise, if the lien is subordinated, then homeowners can get a loan that can help them pay off the debt.


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