If you fail to pay your income or property taxes, the taxing authority may initiate a tax lien against your assets to recover the taxes you owe. Tax liens are often filed by the IRS for failure to pay Federal income taxes that are due, although failure to pay gift or estate taxes may also result in a tax lien.
Before the IRS can file a tax lien against your assets, they must send you a notification of the amount that is due and their intention to progress with a tax lien. If you do not pay the debt within the 10 days following the date of the notice, a lien is created in the amount of the taxes that are due.
When a Federal tax lien is filed against you, your other creditors will be notified, since the IRS has priority over your other creditors for repayment. The tax lien may also be noted on your credit report, which will lower your credit rating and make it much more difficult for you to buy a house, buy a car, or obtain new credit cards.
To remove a tax lien, you must either pay the taxes that are due, along with interest and any other additions, or submit a bond which the IRS accepts that guarantees the payment of your debt. Many states and jurisdictions add additional charges to release a tax lien; these fees must also be paid before the lien will be fully released.
In rare circumstances, a tax lien may be withdrawn. This can happen if the filing of the lien did not follow established procedures. In addition, the lien may be withdrawn if you agree to participate in a plan that allows for the repayment of the taxes that you owe.
An unresolved tax lien creates a precarious situation, since the IRS could choose to sell your property to pay off the taxes that you owe. The IRS could also choose to place a levy on your financial accounts to obtain the money necessary to pay for your debt. Both situations may be avoided if you respond quickly when you receive the IRS notification of their intent to file a tax lien.