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What Is a Federal Tax Lien?

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The IRS has a number of routes that it may take in order to try and recover money that is owed by taxpayers. If you are a taxpayer and you fail to make your tax payment, the tax office can put into place a federal tax lien, which is a legal claim against some or all of your property. This includes property such as your real estate, vehicles, personal belongings and any other financial assets you may have. Federal tax liens can be applied for monies owed on income tax, estate tax or gift tax amongst others.

Before opting for a tax lien, the IRS will assess your liability and then send you a Notice and Demand for Payment, which will explain what you owe in terms of taxes. If you then either refuse or for some other reason fail to make the payment, the IRS may consider opting for a tax lien. This is done by filing a Notice of Federal Tax Lien, which indicates to creditors that the government has legal entitlement to your assets.

A tax lien not only affects the financial assets and personal belongings that you own or have an interest in at the time of issue but can also affect any assets you acquire in the future as long as the tax lien is still in place. It is also worth noting that the tax lien may stay in place even if you file for bankruptcy. There are various options that could result in the withdrawal of the tax lien, which means that the government would no longer be holding rights on your assets. However, you would still have to pay your tax liability if this is done.

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