Federal law gives the IRS a lien on all of a delinquent taxpayer assets if tax is not paid. The Federal Tax Lien is a powerful tool that the government uses to collect tax. However, it is the Notice of Federal Tax Lien that most people think of when the subject comes up. This notice is filed by the IRS when the government stakes a claim on the taxpayer’s property. The filing of a Federal Tax Lien makes the tax debt public and gives the US Treasury a priority interest above all later claims of creditors in the taxpayer’s property.
A tax lien is created automatically after the following three things occur:
- The IRS assess tax liability against the taxpayer;
- A notice of liability and demand for payment has been sent; and,
- The tax debt remains unpaid for more than 10 days after notice.
At that point in time, once these three things have happened, a “secret lien” exists on everything owned by the taxpayer.
The tax lien becomes public when the IRS files a Notice of Federal Tax Lien in the public records. It must be filed or recorded in the place state law requires for the filing of liens and must be filed in the state where the taxpayer lives. The IRS then sends a copy of the notice it has filed to the taxpayer. It is this recorded notice that makes the lien public and gives it priority over any later claims.
A Federal Tax Lien, when properly recorded or filed, gives the government a property interest in everything the taxpayer ownes. With only limited exceptions, this government interest follows the asset wherever it goes. The IRS may claim its rights in the property covered by the lien even after it has been sold to another person.