If you underpay your taxes, you’ll get a Notice and Demand for Payment from the IRS. You have 10 days to pay your tax bill in full before receiving a federal tax lien. Once the IRS files a tax lien against you, it will attach to all your property–such as your property. IRS liens mechanically apply to property you purchase after the IRS files the lien.
Function
The IRS employs a lien to protect its interest on your house. This makes your tax debt a secured, rather than unsecured, debt. Secured creditors have the benefit of getting the legal right to seize your house as collateral because of nonpayment. A lien filed against your home gives you more incentive to pay your tax debt, because the IRS may legally seize your premises at any moment.
Time Frame
The IRS includes a total of 3 years after you file your tax return to file a federal tax lien against your property. Once the tax lien is in place, it will stay for a total of ten years. The IRS notes that tax liens release mechanically after this 10-year period. Even though this is typically the end of the tax lien, the IRS will reserve the right to renew your tax lien for one more 10-year period of it sees fit.
Significance
Once the tax lien is in place, it encumbers your house’s name and will appear in a name search. Since a name search is a typical part of a home sale, you might wish to apply for a lien release prior to selling your home. Although property liens attach to property rather than to the debtor, the IRS lets borrowers to ask a tax lien release in case they would like to transfer ownership of the property. It’s in the discretion of the IRS whether or not to grant you this release.
Factors
In the event you do not pay your tax debt, the IRS may waive in your premises anytime throughout the 10-year period where the lien is valid. If you quit paying your mortgage, and your primary mortgage lender opts to foreclose on the property, the IRS may”redeem” your home by paying your mortgage lender the amount you owed on your mortgage. It then lawfully owns the property and any equity you assembled at the home over time with your mortgage obligations.
Effects
Should you pay off the tax debt that you owe to the IRS, the IRS should grant you a Certificate of Lien Release and release the name encumbrance from your property. If the IRS fails to grant you a Certificate of Release within 30 days when you pay off your tax debt, you have the right to file a lawsuit against the IRS. You do not, however, be able to bring a legal claim against any particular IRS employees.