When taxpayer’s come into my office in Richardson, TX related to IRS tax debt issues, threat of or Notice of a Federal Tax Lien is one of the major reasons. Taxpayers often don’t understand the process, how a Tax Lien impacts them, and what they can do to avoid one or remove one.
The Notice of Federal Tax Lien (NFTL)
The Notice of Federal Tax Lien (NFTL) is a public document filed to alert third parties that the taxpayer owes the IRS money. The NFTL puts creditors on notice that the IRS has filed a lien to secure the government’s claim to the taxpayers assets.
Filing the NFTL is a consequential step taken by the government and has a serious impact on the taxpayer. If you owe more than $10,000, the IRS may file an NFTL against the taxpayer if they do not respond to the notices.
What is the Impact of the NFTL?
The Federal Tax Lien attaches to all the assets owned by the taxpayer at that moment or that the taxpayer has a right to in the future after they acquire or have ownership of those future assets.
The Notice of Federal Tax Lien has several negative repercussions:
- 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.
What are the limitations of the NFTL?
There is a lot of misinformation about a tax lien. Some people believe that an NFTL supercedes all valid legitimate liens in place. 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.
There is also a belief that the NFTL impacts your credit score. It does not. NFTLs are no longer reported to credit reporting agencies. However, as noted above, although it may not directly affect your credit score, it does impact a taxpayer’s access to credit since potential creditors are less likely to lend money to taxpayers with an NFTL.
Do You Need Help?
If you need help with a Tax Lien or other IRS Collection issue, I’d be happy to talk with you. Please give me a call at (972) 821-1991 or email me at bob@jablonskyandassociates.