If you fail to pay taxes that you owe, or upon a review of past tax returns the Internal Revenue Service determines that you owe a past tax debt and do not remit payment within ten days, the IRS can apply a tax lien to any property that you own. The lien will remain attached to your property until you pay it off or the statute of limitations on the lien expires.
The Skinny on the IRS Lien
A lien is an encumbrance on an individual’s property that appears in a title search. During the period that a federal tax lien is valid, the IRS may use the lien to foreclose on the property. Foreclosure from the IRS is more likely if a debtor possesses a large amount of equity in his home while the overall tax debt he owes is relatively small. In the event of an IRS foreclosure, an individual has 180 days to pay off the tax lien and redeem his property before losing it permanently.
Federal Tax Lien Statute of Limitations
The statute of limitations on IRS debt is ten years. This statute of limitations begins when the IRS assesses the original tax debt rather than the date the debtor submits her tax return. Unlike the statute of limitations on private debt collection, the statute of limitations on a tax lien can expire regardless of whether an individual is still making payments on her delinquent tax debt. Should a debtor pay off the tax debt prior to the expiration of the ten year statute of limitations, she can obtain an early lien removal.
Tax Liens Damage Your Credit
Once the IRS levies a federal tax lien against a consumer, a record of the tax lien appears on his credit report. Tax liens damage credit scores and can make it difficult for an individual to qualify for low interest rates on new credit and loans. The Fair Credit Reporting Act states that federal tax liens will be removed from a debtor’s credit reports seven years from the date the debtor pays off the tax lien. Individuals may obtain a certificate of release from the IRS after the statute of limitations expires on a tax lien and submit a copy of the document to the credit bureaus to have tax liens removed from their credit records.
Tax Lien Limitation is Vs IRS Statute of Limitations on Collections
The ten year statute of limitations is often confused with the Collection Statute Expiration Date (CSED). Although the two are frequently the same, the IRS reserves three years from the date the original tax debt was assessed to assess additional tax debts stemming from the same return. Should this occur, an individual’s CSED will differ from the statute of limitations for his tax lien by the amount of additional time the IRS needed to levy the additional tax debt.
Things to Consider
Certain actions an individual takes can extend the standard ten year statute of limitations on her tax lien. Leaving the country, filing for bankruptcy or proposing a tax settlement via an offer in compromise all can extend the statute of limitations on the tax lien. According to the IRS, it reserves the right to refile a tax lien within one year after the original lien’s statute of limitations expires.
- IRS: Federal Tax Liens
- Federal Trade Commission: The Fair Credit Reporting Act (Section 605)
- Federal Trade Commission Consumer Information. "Time-Barred Debts." Accessed Feb. 29, 2020.
- Federal Trade Commission. "Fair Credit Reporting Act § 605. Requirements Relating to Information Contained in Consumer Reports," Pages 22-23. Accessed Feb. 29, 2020.
- Consumer Financial Protection Bureau. "What is the Statute of Limitations on a Debt?" Accessed Feb. 29, 2020.
- Federal Trade Commission. "Under FTC Settlement, Debt Buyer Agrees to Pay $2.5 Million for Alleged Consumer Deception." Accessed Feb. 29, 2020.
Ciele Edwards holds a Bachelor of Arts in English and has been a consumer advocate and credit specialist for more than 10 years. She currently works in the real-estate industry as a consumer credit and debt specialist. Edwards has experience working with collections, liens, judgments, bankruptcies, loans and credit law.