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What is a Lien and Why Should Anyone Care?

October 17, 2014  |   Tax Advice,Tax News   |   Tags: , ,  

“Lien” and “levy” are two terms the public hears thrown around a great deal, often within the same sentence. While both are collection measures taken by the IRS, they are very different. A levy often results a taxpayer’s money being taken from his or her wages or a bank account. This is a simple enough concept to grasp. Liens, on the other hand, are very rarely understood by even those who have one placed against them. In reality, they are not actually all that complicated but can be incredibly problematic for the debtor.

lien lawA lien occurs when the IRS secures their interest in your property in the event that your tax debt is not paid; you may think of your assets as collateral for the IRS. This includes anything you own at the time the lien is placed on you and everything that becomes yours while your tax debt remains unsatisfied. This includes your house, car, appliances, electronics, and most other physical possessions. This lien also extends to your share of a business.

Many people don’t become concerned when they see that the IRS has a tax lien against them. They may not own much personal property, so they believe the lien doesn’t negatively affect them. However, this is far from true. IRS tax liens can hurt a person’s credit score significantly. When the IRS claims all of your present and future property as collateral, there may be little for other creditors to claim. Beyond this, an IRS tax lien is a black mark. It tells potential creditors, property agents, and other financial institutions that the most powerful collection agency in the world is working to collect an outstanding debt.

Liens have also been known to damage a person’s job opportunities. Careers that require a certain level of security clearance may not take on anyone with an IRS tax lien. In fact, someone who holds a job with the government can be let go because of a tax debt. Other jobs, especially in the financial industry, want employees who have outstanding credit. As mentioned previously, an IRS tax lien can make quite an impact on a person’s credit score. Fortunately, there are things that can be done about IRS tax liens. It’s often in a person’s best interest to work with a reputable tax professional to see what their options are and create a plan to handle a lien.