Federal Tax lien is an allegation made by IRS (Internal Revenue Service) against a person’s property when the consumer overlooked or failed to pay a tax debt. The lien gives the government legal interest in all of consumer’s property, which is real estate, financial assets and personal property. Federal tax liens exist when a person, for whichever reason, fails to pay the debt on time, after which the IRS assesses a person’s liability and sends the consumer a statement that clarifies the owed debt.
In case of assets, a lien is linked to all of person’s assets (property, cars, and securities) and to the prospective assets gained within the time of the duration of the lien. In case of credit, IRS liens may lessen a person’s chances of applying for it. The liens are also attached to all business properties and to all rights to them, not excluding collectible accounts.
IRS liens, or Federal Tax Liens, negatively impact the credit score. The credit score will drop drastically and it will become difficult to apply for new credit or to take on a new loan.
Contrary to other credit or loan accounts, IRS does not update the balance on the person’s federal tax lien. The IRS can be contacted by the taxpayer in order to receive information of the current payoff amount and only the taxpayer himself can receive requested letter.
When the consumer pays diligently his tax in full and before any liens were filed by the IRS, Federal Tax liens can be avoided. Another way of preventing filings of IRS liens is by setting up an installment arrangement that meets the IRS standards. In this case, the IRS does not file federal tax liens when the consumer sets up either a guaranteed or a streamlined installment agreement.
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