Federal Tax Liens - What They Are and Why They Matter

Taxpayers who have fallen behind in paying their taxes may have to face having a "notice of federal tax lien" filed against them. This can have big - and bad - effects on their lives.

Liens 101: What is a Lien?

For those unfamiliar with the term, a "lien" is essentially a claim -- someone claims you owe them money. As Black's Law Dictionary put it, a lien is "a claim or charge on property for payment of some debt, obligation, or duty."

In certain situations, the person (or business, or government agency) making the claim can file a document announcing this claim with the County Clerk or other public records authority.

For example, in New York City, liens are not filed with the County Clerk. Instead, they are filed with the "City Register," but for purposes of this article, I'll just refer to the County Clerk as being the public records authority, whatever title some city or town might use.

By filing a lien with the County Clerk, the claimant announces to the world (and especially to credit reporting agencies) that the claimant says you owe it money.

It's like taking a private debt (or claimed debt) and shouting from the rooftops to everyone around: "you owe me money!"

Why Should I Care?

After all, just because some joker might say you owe them money doesn't mean you really do, right? Yes, but...

Publicly filing a lien can have a real and negative effect on your life. It can

• damage or even ruin your credit score, making it harder, more expensive, or even impossible to get a loan, mortgage or other credit.
• interfere with, complicate, or wreck your efforts to sell property, and, imagine an agent from the IRS showing up at the closing when you sell your house or apartment demanding the IRS's piece of the proceeds.
• make you ineligible for certain jobs.

How the IRS Uses Liens

As mentioned above, the lien the IRS has against taxpayers has its own special name: a "federal tax lien."

The IRS uses the federal tax lien as part of the set of tools it can use to make sure it collects taxes. And, the IRS uses this tool a lot! For example, for the 30 days running between the middle of January 2009 and the middle of February, in New York City, on the island of Manhattan alone, the IRS filed 580 liens.

580 liens in a month works out to be almost 27 liens filed every business day.

Don't You Have to Owe a Lot to Have an IRS Lien Filed?

How much do you have to owe for the IRS to file a lien?

It is amazing how little it can take. In mid-February, 2009, the IRS filed a notice of federal tax lien on a tax debt of only $41.06. This $41 dollar lien was filed only hours before this article was written.

On the other end of the scale, the largest lien filed in Manhattan in this one-month period in early 2009 was for over $8 million dollars.

The range of tax debts that become targets of federal tax lien filings show how far and wide the IRS reaches, affecting tens of thousands of taxpayers across the country every month, in its effort to collect unpaid taxes.
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Allan R. Pearlman, Esq. is an attorney who helps taxpayers, both individuals and businesses, who are being hunted by the IRS get out of trouble. He has written a free special report titled, "7 Big Mistakes Taxpayers Make and How to Avoid Them to (Legally) Keep the IRS Out of Your Wallet, Out of Your Bank Account, and Out of Your Paycheck." Get this report free by going to http://www.arpearlmanlaw.com/AvoidTaxMistakes/. His website can be seen at http://www.arpearlmanlaw.com.

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