The Internal Revenue Service is in charge of collecting taxes from customers. If it determines that someone owes taxes, then he is notified by it of this fact via a Notice and Demand for Payment. Once the debtor receives the notice, he’s got 10 days to fulfill his overdue tax debt prior to the IRS documents a federal tax lien against his or her assets. .
Facts
Most creditors must seek liens. After prevailing in a lawsuit against the debtor A private creditor can acquire a writ of execution. An effective court judgment for an outstanding credit card debt, by way of instance, gives the credit card company that the right to ask a writ of execution from a debtor’s real estate or from private property such as his vehicle. The IRS, however, isn’t limited by standard legal procedures and may get a writ of execution without ever suing an individual. Additionally, the IRS doesn’t have to file separate liens for each of the debtor’s assets. A single IRS tax lien mechanically attaches to all a debtor’s property.
Significance
A lien secures a debt, which makes it easier for a creditor to collect. For instance, if a creditor has a lien against an individual’s automobile, it reserves the right to repossess the car and sell it unless the vehicle’s owner pays the debt. Because the IRS holds a lien from all of an individual’s possessions and resources, it can seize property at any time to meet the debt.
Time Frame
An IRS tax lien impacts a debtor’s property for a limited time. Tax liens which aren’t valid aren’t enforceable by the IRS. The IRS notes that all federal tax liens have a 10 year life span. After 10 years, the lien expires and, though this doesn’t exonerate the consumer from the tax she owes, it does prevent the IRS from forcibly seizing some of her resources in lieu of payment.
Outcomes
Once the IRS places a tax lien from a consumer, a listing of this tax lien looks on his credit report. Tax liens damage credit scores and, unlike many credit report entrances, can stay on an customer’s report for at least a decade. The Fair Credit Reporting Act, that determines the legal reporting period for different varieties of debts, states that the credit reporting agencies have to delete the lien against someone’s document seven years after receiving payment in full. . Until that moment, however, future lenders and creditors can watch the outstanding tax lien whenever they pull the individual’s credit files. This can negatively affect the customer’s ability to qualify for funding, credit or insurance.
Factors
An IRS tax lien does not only alter the debtor, it impacts her other creditors as well. If, by way of instance, a customer’s mortgage lender forecloses on her house and the home includes a tax lien, the creditor must give the IRS 25 days’ notice that it intends to foreclosure before it can clear the tax lien and seize the property. The IRS’ security interest, nevertheless, does not clear for 120 days–giving it the best to pay back the mortgage and”recover” the property from either the creditor or the owner for 3 months. This makes foreclosed houses that carry federal tax liens more difficult for creditors to sell before the 120 day redemption period expires.