Over the past year, since the onset of COVID, the IRS has taken a very hands off approach to tax items. However, that is beginning to change. Late in 2020 we began to see the IRS filing Notice of Federal Tax Liens (NFTLs) on taxpayers with IRS debt and we expect that to begin even more prevalent as taxpayers emerge from the pandemic owing the government and with the government in need of revenues. So, what is a Notice of Federal Tax Lien and what should you do if one is filled
What is a Notice of Federal Tax Lien (NFTL)
A Notice of Federal Tax Lien (NFTL) is a public document filed to alert third parties that the taxpayer owes the IRS money. Filing the NFTL is a consequential step taken by the government and can have a serious impact on the taxpayer.
Prior to filing the NFTL, the IRS sends a series of notices prior to filing an NFTL, however, if the taxpayer does not take action to resolve the debt, the IRS may file an NFTL to protect the government’s interest. While the IRS does not always file the NFTL, they are supposed to file a lien whenever the taxpayer owes the government more than $10,000 so be prepared for one if you are in that group.
How does the NFTL impact a taxpayer?
An NFTL, can impact a taxpayer in a number of ways.
- It will affect your access to credit,
- It will affect your ability to sell or transfer property.
- It impacts property owned at the time that the lien was put in place and all property owned subsequent to the NFTL.
Some people believe that an NFTL supercedes all valid legitimate liens in place but it does not. For example, if the taxpayer owns a home with a mortgage against it, once the NFTL is filed, in the event of the sale of the property, the bank will still have the right to the repayment of its loan. However, the IRS would then have rights to any excess proceeds from the sale until it is paid in full for the tax debt. This is why no lender will refinance your loan or provide a 2nd mortgage while the NFTL is in place.
An NFTL is generally filed in three places that are the locations where creditors generally conduct a UCC search on prospective borrower’s that include:
- At the town hall of the jurisdiction in which the taxpayer resides,
- With the secretary of the state of the taxpayer’s state of residence, and
- In the land records at the address where the taxpayer reside.
Do You Need Help?
There are ways to have an NFTL Released, Withdrawn, Discharged and/or Subordinated, in other words, it is possible to resolve your NFTL issue with the IRS. If you need help with a Tax Lien or other IRS issue, I’d be happy to talk with you. Please give me a call at (972) 821-1991 or email me at [email protected].