When taxpayer’s come into my office in Richardson, TX related to IRS tax debt issues, one of the major reasons is that either they fear a lien or have received a Notice of Federal Tax Lien. Taxpayers often don’t understand the process, how a Tax Lien impacts them, and what they can do to avoid one or remove one. This is one in a series of articles discussing the IRS Tax Lien.
The Types of Liens
There are two types of liens that Congress has authorized the IRS to use under Section 6321 of the Internal Revenue Code, to use when a taxpayer is liable to pay any tax, and fails to pay the tax after a demand by the government for payment. The two types of liens are known as:
- The General Lien, better known as the “Silent Lien”, and
- The Notice of Federal Tax Lien (NFTL)
Today we will focus on the General Lien or the “Silent Lien”
General Lien or “Silent Lien”
Did you know that if when any “person” is liable and fails to pay any federal tax, there is already a lien on their property? Most taxpayers who come into my office hoping to avoid a tax lien, do not realize that there is already a “silent lien” against their assets that exists by statute. The government does not need to take any action for the lien to attach. The general lien is a broad lien; it generally encompasses all of the taxpayer’s property or rights to property, as security for a tax liability. Of course, since it is a “silent lien”, no one knows that the lien exists, including potential creditors.
There are three prerequisites to a valid federal tax lien:
- The IRS has assessed the tax liability;
- The IRS has given the taxpayer notice of the amount assessed and has demanded payment; and
- The taxpayer has failed to pay the amount assessed within 10 days after notice and demand.
For purposes of notice and demand, once the IRS processes the return, they will assess the tax. With E-filing, these two processes typically take place simultaneously. Next, they will send their initial notice of the tax, such as a CP501. This is the formal demand and starts ticking of the 10 day clock.
While the “Silent Lien” is an important tool for the IRS and legally gives the government rights to the property of the taxpayer, because it is silent, it does not have power of the Notice of Federal Tax Lien (NFTL) that we will discuss next.
In the upcoming weeks, we’ll dig deeper into the IRS Lien process including what to do if the IRS has filed a lien against you. Stay Tuned!
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