What Is a State Tax Lien?

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A tax lien is a legal claim made by the government when a person fails to pay one of a range of taxes, such as income tax, estate tax, or taxes on personal belongings. If payment is not forthcoming when the taxpayer receives a Notice and Demand for Payment, the next course of action from the government could be placing a tax lien against your property. These claims can be imposed by either the federal or the state government.

What Is a State Lien?

As the name suggests, a state tax lien is imposed by the state government. It enables the government to exercise a legal right over the property of the debtor in order to secure the tax that is owed. A Notice of State Tax Lien is issued before this action is taken. Depending on the assets owned by the taxpayer, the lien can apply to real estate or personal property. This lien then remains on the property in question until the taxes have been settled or another appropriate resolution is reached.

Before the Notice of State Tax Lien is issued, several steps will be taken by the government. Firstly, your tax liabilities will be assessed, after which a Bill for Taxes Due or a Final Bill for Taxes Due will be sent to you. There will then be a waiting period of 35 days, within which you must settle the tax debt or come to some arrangement before a Notice of State Tax Lien is issued.

How Long Does a State Tax Lien Last?

A statute of limitations is a legal time frame during which legal action can be brought against someone. The IRS generally has up to three years from the date you file a tax return (or are required to file a tax return) to assess additional liabilities on federal income taxes. 

There are two exceptions with federal taxes: 1) if you underestimate your gross income by more than 25 percent or 2) if you fail to file a return or file a fraudulent return. Under those circumstances, the statute of limitations is extended to six years and no time limit, respectively. Additionally, the federal government has 10 years from the date the final amount is due to collect unpaid taxes. However, you can reset or suspend the statute of limitations if you 1) enter an installment agreement with the IRS, 2) reach an offer in compromise, or 3) enter bankruptcy.

On the other hand, states generally follow the three-year rule for state income taxes. However, several states do not follow the three-year statute of limitations rule. For example, Arizona, California, Colorado, Kentucky, Michigan, Wisconsin, and Ohio can extend up to four years to assess additional tax obligations. Meanwhile, Minnesota provides three and a half years, and Montana allows five years. Kansas, Louisiana, New Mexico, Oregon, and Tennessee all follow a three-year timetable with limited exceptions.

Checking with your local state government can help answer more questions about the statute of limitations in your own state. You may also find it easier to consult with a tax professional regarding a state lien. Tax professionals are your best line of defense from liens and levies placed on bank accounts, property, assets, and wages.

The general rule is that a statutory lien can last for three years. However, the federal government has up to 10 years to collect a tax debt. Therefore, it is wise to reach a settlement or appeal a tax lien before the IRS can place a levy on your bank accounts or property.

How Do You Get a Lien Removed?

A tax lien is the first step the Internal Revenue Service takes to recover back taxes. Once the IRS enforces a tax levy, it can freeze your bank accounts, seize personal property and assets, as well as garnish wages.

Consequently, you want to take every precaution possible to have a tax lien removed before the IRS acts. Thankfully, there are several ways to remove a state lien. First, states place limitations on how long a lien is valid. The rules vary widely by state, which makes speaking to a tax professional your first step in avoiding harsh wage garnishments and property seizures.

Secondly, you can enter private negotiations with the IRS or state government. You can discuss the possibility of settling unpaid taxes, for example. A tax professional can help you negotiate through arbitration, mediation, or informal discussions.

Taxpayers also have the legal right to file a court order. You may also consider lien stripping (available in chapter 13 bankruptcy) or lien avoidance (chapter 7 bankruptcy). After analyzing your circumstances, a tax professional may also recommend trying to enter a property lien removal process.

Avoid State Tax Liens

Liens give the state government a significant amount of power over your finances and assets. Unfortunately, things rarely turn out well for delinquent taxpayers once a tax lien is placed. Liens offer security for creditors by allowing the government (or another creditor) to seize property or take other legal action to satisfy debts and obligations. Further, liens are public record, which means they can destroy your credit score and make it very difficult to obtain new loans.

As a result, you should consider the most viable options for removing a state lien. The first, and most obvious way, is to pay off the debt in full. However, most taxpayers reach this predicament for a reason and simply don’t have the necessary funds. Consequently, settling with the state government is a viable option, but it is only recommended if you have qualified legal representation.

You also have the right to appeal a tax lien if you believe the claim is not legitimate. There are cases in which tax liens get released or forgotten but still stay on your property, for example. Disputing a claim by filing an appeal is a legal right you have as a taxpayer, but only under specific parameters.

Levy & Associates—Your Tax Defense Team

Levy & Associates supports individuals and businesses of all sizes when it comes to tax liens and levies. Whether the lien is placed by the state or federal government, we have the resources and experience to protect your assets.

State liens are the first step toward seizing your funds and assets. You could lose a home, vehicles, savings, or wages because a lien turns into a levy. If the state government notifies you of a lien, you need to act now.

Contact Levy & Associates at 800-TAX-LEVY or visit levytaxhelp.com. We are available for a free initial consultation to discuss the details of your tax lien and the options available to help satisfy any unpaid taxes.

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