When taxpayers don’t pay their federal income taxes, the Internal Revenue Service takes actions to secure the debt owed to the federal authorities. Under certain conditions, the IRS can get a lien against personal property such as houses and cars. The result of a personal property lien varies based on the way in which the taxpayer responds to the lien.
Credit Damage
A federal tax lien is reported to all 3 big credit bureaus: TransUnion, Equifax and Experian. They include the lien into your credit file, and this also causes harm to your credit score. The lowering of your credit score affects your capacity to procure credit for future purchases, including purchases made after the tax is paidoff. Tax liens remain in your credit report for 15 decades. If you pay them, credit bureaus must remove them from your credit report after seven decades.
Notification to Lien Holders
Whenever the IRS puts a tax lien on your property, it also sends official notification of their lien to your creditors. This includes mortgage companies, auto finance companies, credit card companies and other lenders. According to the IRS site, notification is used by courts to establish priority over other creditors with an interest in your house. This aids courts in applying liens to bankruptcy proceedings and property sales. The lien becomes a public record. If the tax is paid in full, the IRS informs creditors of your discharge from the lien.
Property Problems
In the event the IRS puts a tax lien on your property, you are required to meet the lien until it is possible to sell or borrow against the equity you’ve got in your premises. Homeowners also are not permitted to refinance their houses while the lien is set up. In case you have equity in your home, you can use the equity earned during the sale of your home to meet the lien. This occurs during closing. If a home has been marketed for less than the lien amount, taxpayers can ask the IRS release the lien to permit for the conclusion of the sale. Taxpayers and lenders can also apply to have a tax lien announced secondary into your mortgage lien. This allows the homeowner to refinance the mortgage loan. According to the IRS site, the Internal Revenue Service started working in 2009 to expedite release requests and lien subordination software to assist taxpayers throughout the economic downturn. A federal tax lien attaches to property bought after the lien is set up. This makes it tricky to make purchases for cars and property.
Tax Levies
An IRS tax lien remains in place for 10 decades or until you settle the debt and the lien is discharged. If the IRS determines you are not dedicated to paying off the debt then it cannot utilize the lien to secure payment, then it has the option of placing a tax levy on your property. This allows the IRS to seize your house and sell it through a private or public sale to recoup the debt. The IRS can also levy your wages and bank account.