Where an individual or business owes IRS taxes, Congress has given the IRS a tax lien against all the assets of the taxpayer. The lien covers real estate, homes, furniture, cars, investments, and nearly everything an individual may own. The IRS tax lien also covers all the assets of a business that owes taxes.
The IRS will also record a notice of this tax lien against a taxpayer, typically in the county where deeds are maintained. Once the notice of the tax lien is recorded, most counties publish the lien recording electronically and this information then "goes out to the world." The information in the tax lien notice identifies the individual or business that owes the tax, his/her/its address, and the type and amount of taxes (and penalties and interest) owed. Once the tax lien notice is posted, the taxpayer's credit rating will be affected.
The IRS will "release" its tax lien if all taxes, penalties, and interest reflected in the lien notice are paid. Most IRS tax lien notices are electronically-filed through the IRS "Automated Collection System," and even after full payment of taxes, it can take the IRS months to actually release a tax lien notice. This process can be expedited, however, often with direct contact with IRS representatives.
If an IRS tax lien has been filed, and the taxpayer wishes to sell property but the sale proceeds will not fully pay all the taxes owed, the IRS can partially "discharge" its tax lien in the specific property being sold, but otherwise, retain its lien in other property of the taxpayer. The discharge process does allow taxpayers who owe taxes to sell property, with the lien being removed from the property, in order to accommodate a sale; however, under the IRS lien discharge process, the IRS requires that the taxpayer's full "net equity" in the property (after closing costs) be paid to the IRS as a condition of the lien discharge.
Taxpayers seeking a lien release or discharge in specific property rarely should go through this process without professional tax advice.
PartnerErik Doerring is a business lawyer, with the skills of a tax litigator. Prior to joining the firm, Erik was an attorney with the IRS Office of Chief Counsel and the U.S. Department of Justice, Tax Division.
Erik regularly advises the ...
