How a tax lien affects the taxpayer

If the IRS accuses you of failing to pay a tax debt, the agency may try to put a tax lien on your property. A lien can cause serious trouble, because it severely restricts your ability to use or transfer your assets, such as real estate or a small business, as you see fit.

Broadly speaking, the process works like this. The IRS assesses what it believes to be the taxpayer’s balance due and sends him or her a bill called a Notice and Demand for Payment. If the taxpayer does not respond or does not agree to pay the bill, the IRS can file a Notice of Federal Tax Lien. This document alerts the taxpayer’s creditors, if any, that the federal government is also making a claim on his or her property.

Once a tax lien is established, it attaches to all of your assets, including assets you have not yet acquired, but obtain while the lien is in place. It can affect your rights to your business’ accounts receivable, and limit your ability to obtain credit, potentially paralyzing your business. Note that a lien is different that a levy, which is a direct seizure of your property to pay off a tax bill.

Going up against the IRS by yourself can be very difficult, even if you are in the right. Having an experienced tax attorney representing you can even the playing field, giving you a fair chance to settle the dispute fairly, so you can move on with your life.

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