A federal tax lien refers to a legal claim imposed by the Internal Revenue Service (IRS) against an individual or entity for the unpaid federal taxes. It is a legal encumbrance on the taxpayer's property, including real estate, personal belongings, and financial assets, serving as a means for the government to secure a tax debt.
When a taxpayer fails to pay the required federal taxes, the IRS may file a Notice of Federal Tax Lien (NFTL), establishing its legal right and claim over the delinquent taxpayer's property. This lien acts as a public record, alerting creditors and potential buyers that the taxpayer has an outstanding debt with the government.
By filing a federal tax lien, the IRS protects the government's financial interests and prioritizes its claim over other creditors in case of foreclosure, bankruptcy, or sale of property. The lien affects the taxpayer's creditworthiness and can potentially limit their ability to obtain loans or credit.
However, it is essential to note that a federal tax lien does not necessarily result in the immediate seizure of the taxpayer's property. It represents a legal claim and gives the government the right to collect the unpaid taxes through various means, such as levying assets, garnishing wages, or negotiating a settlement with the taxpayer.
The lien remains in effect until the taxpayer fulfills their tax obligations, either by paying the debt in full, reaching a settlement, or satisfying the tax liability through other means. Once the debt is settled, the taxpayer can request the IRS to release the lien, removing the encumbrance from their property.
