IRS Tax Liens – What Property is Impacted?
What Kinds of Property are Affected?
The IRS tax lien attaches to all your assets as of the date of the lien as well as any future assets you acquire. Examples of potential future assets are:
- Lottery winnings
- Marriage (if added on as a co-owner of your spouse’s property or as part of a divorce)
- Keep in mind, this is not all possible future assets you could acquire!
All forms of property, whether in your name or not, can be reached by an IRS tax lien. Real estate, personal effects, bank accounts, life insurance, interests in a business, money loaned out, copyrights, trademarks, and on and on. The IRS tax lien reaches assets even if you do not own it outright, like shares in a family camp or property held by a nominee on your behalf. It even reaches things that you would not consider property such as the right to disclaim an inheritance! Unlike an IRS tax levy, the IRS tax lien can reach most any time of property in which you own outright or through other parties.
How Does an IRS Tax Lien Impact Your Financial Life?
While not a financial hardship like a tax levy, an IRS tax lien does impact your financial life in a number of ways. First, it has an impact on your credit score. Once a Notice of Federal Tax Lien is filed by the IRS to report the lien to other creditors, you can be sure that banks and other lenders will get that information. I know liens are no longer reported on credit reports but that does not mean it is unavailable. Expect to pay more in interest on any loans or be denied a loan altogether as banks have other means to obtain that information.
Second, IRS tax liens also hinder your ability to give and receive property. Transfers as part of estate planning or divorce will not get rid of the lien. It will stay on that property until removed or expire on its own. Just to give you an idea how this works let me tell you a quick story.
We once consulted with Alicia (again not her real name) on how to resolve her IRS tax problems. She was recently divorced and had received 100% of the marital home as part of the property settlement. The problem for Alicia was that at the time the property was transferred, the home was subject to an IRS tax lien related to her ex-husband’s tax debt.
If Alicia later sells the home, the IRS will get paid first out of what was her ex-husband’s 50% share of the home – even though he no longer owns an interest in the house! A big mess for Alicia, who likely made other concessions to her ex-husband to obtain the marital residence free and clear.
Finally, if the IRS files a Notice of Federal Tax Lien then you expect to be mobbed by offers by national tax resolution firms. Be careful of their offers to “help you” as not all of these firms are looking out for you best interest. Many (though not all) are out to make a quick buck while doing little or nothing to help you resolve your IRS problems.
A Word of Warning about IRS Tax Liens
Before wrapping up, a word of caution! Some people think that by transferring property out of their name that this will remove the Federal tax lien. Wrong! Let’s say that you transfer your home, after a Federal tax lien arises, to your spouse or children. By law, the Federal tax lien continues to attach to the property unless you do something to remove the lien before the transfer. My advice – don’t do it!
If you remember nothing, at least remember this – an IRS tax lien is like pine pitch. If you’ve ever had pine pitch on your hands you know that it is sticky and damned hard to get off. Worst of all, it sticks to anything else you touch. IRS tax liens are the same way. The lien sticks to you and anything else you touch, and it is damned hard to get rid of. In my next blog post, we will talk about some of the ways you can remove an IRS tax lien from your property.
I am Maine’s IRS Problem Solver. My firm helps Maine taxpayers in trouble. If you or someone you know in Southern Maine wants more information on how to resolve your unpaid taxes, please feel free to contact me directly at 207-502-7181 or by filing out my contact form. A Maine tax attorney can help you consider your options.