A notice of federal tax lien means that the IRS has filed a notice to seize assets necessary to satisfy an outstanding tax payment. When a taxpayer receives a notice of federal tax lien, they are given 10 days in which to make acceptable arrangements to address the outstanding tax payment. Although the IRS may accept an arrangement other than full payment, only full payment within the 10 days will lift the federal tax lien.
How a Notice of Federal Tax Lien Works
A notice of federal tax lien is filed in the state or county where the taxpayer with the outstanding tax payment resides. If such a notice is filed in front of other creditor liens, the notice of federal tax lien will take precedence over those liens. As the primary creditor, the IRS is given the ability to seize all prior, current and future assets of the taxpayer. This seizure takes place only up to the amount necessary for the IRS to satisfy the amount of outstanding tax payment (including interest and penalties).
Time Limit on a Notice of Federal Tax Lien
When a notice of federal tax lien is filed, it is only good for a period of 10 years from the date of the lien. If the IRS fails to initiate action against the taxpayer or collect the outstanding lien within this period, the lien expires. It would be up to the IRS to seek a substitute lien in this event if they wish to recover the outstanding tax payment of the taxpayer.
What does it mean for a federal and state tax lien to be filed?
When a federal and state tax lien is filed against you, it is generally because you did not pay your entire tax bill to the state or the federal government. When this happens, both the federal government and your state government will have a claim to your property. This means that they could potentially seize anything that they want in order to sell it and get their money back. Tax liens will generally take precedent over any other type of debt that you may have. The lien will not be removed until the debt is paid.