how long does a federal tax lien last

If you owe the IRS and can’t afford to pay the debt, you will likely be subject to a tax lien. The IRS will issue a tax lien in an effort to collect the debt.

In this article, we’re taking a closer look at one of the most common questions we hear from customers – how long does a federal tax lien last?

How Long Does a Federal Tax Lien Last?

When the IRS issues a federal tax lien, they lay a legal claim to your assets and property with the intent of securing what you owe. This does not mean that a lien gives the IRS the right to physically take what you own – but it is the first step towards separating you from what’s yours, should you fail to pay your debts in time.

However, federal tax liens can expire. It doesn’t happen often – and it’s not easy to tell when a federal tax lien is about to expire.

So, how long does a federal tax lien last?

What is a Federal Tax Lien?

When a taxpayer owes more than $10,000 in taxes (as a result of unpaid taxes, late filing and/or late payment penalties, and interest), the IRS is within its right to file a public notice called a Notice of Federal Tax Lien. They may do so within ten days after informing you of your overdue taxes and failure to meet the payment deadline.

This public notice informs everyone (creditors in particular) that should you liquidate your assets, the IRS will be first in line to take a cut. More than anything, it represents the intent to collect what is owed, one way or the other, and it ensures that the IRS’s claim takes precedence over any other creditor.

The greatest consequence of a federal tax lien is that it may limit your ability to seek additional credit and financing. Creditors would be less likely to offer loans while you have a tax lien on your property, and you cannot use your assets as collateral to secure a loan.

In the past, an additional risk to being under tax lien label was that it meant a drastic and severe penalty to your credit score, a black mark that would last nearly as long as a bankruptcy (up to seven years if released/paid, and up to ten if left unpaid).

However, all three credit reporting agencies stopped doing this in 2018. Failing to meet payment deadlines as an indirect result of a tax lien, however, will still affect your credit.

When Does a Federal Tax Lien Expire?

A federal tax lien expires with your tax debt after 10 years. The collection efforts the IRS pursues can only be in place for as long as your debt remains within the statute of limitations. For tax debt, this is 10 years from the date of tax assessment, as per your Notice of Deficiency, or tax bill from the IRS. This date is called the collections statute expiration date (CSED).

However, this does not mean that the debt truly expires after exactly 10 years. There are multiple different events that serve to prolong the IRS’s collection limit, and the agency will usually pursue the opportunity to extend the collection period more aggressively the closer you are to your CSED.

The purpose behind extending the collection period through so-called “tolling periods” is to make up for the fact that the IRS cannot typically pursue any collection efforts during the duration of these events. Significant examples include:

  • Submitting and having an offer in compromise be reviewed
  • Being currently not collectible
  • Submitting an installment payment agreement
  • Tax court hearings
  • Bankruptcy (including an additional six months after bankruptcy proceedings have ended)
  • Being in a foreign country for more than six months
  • Being in deployed on active military duty for more than six months
  • If none of this ever applied to you, and if you’ve been up-to-date with your estimated payments and returns but haven’t completely paid off an old federal tax debt from ten years ago, then the possibility remains that it may expire soon, and so will the relevant tax lien.

However, it’s worth noting that the IRS is ultimately interested in securing whatever it can and will make increasingly attractive deals the closer you are to your CSED, on the condition that these deals extend your collection period.

If you think you’re close to your CSED, be sure to review your financial and tax history with a tax professional to confirm and consider your next steps.

Does Being Currently Not Collectible Affect Tax Liens?

If you are in deep financial trouble and cannot afford to begin paying back your tax debt, you have the option of petitioning to be filed as currently not collectible (CNC). This is a status that halts and prevents all collection efforts by the IRS until your income reaches a point where you can feasibly begin to pay them back. This status will last for as long as it takes for you to get back on your feet.

However, it does not stop penalties or monthly interest, and it does not lift tax liens. Being currently not collectible extends the collection period and delays your CSED.

How Are Tax Liens Lifted?

A federal tax lien is released or lifted when your debt is paid, or in the very least, when you have made a considerable commitment towards paying off your debt (at least four consecutive payments, no history of tardiness, and an up-to-date record for your tax returns and estimated payments, if applicable).

You don’t have to pay off your entire tax debt if it isn’t feasible. The IRS eased the requirements on the offer in compromise program and will only base your reasonable collection potential (RCP) on the next two years of income, rather than the remaining duration of the collection period.

You can use the IRS’s online pre-qualifier tool to see if you’re potentially eligible for an offer in compromise, should your tax debt be too high to resolve fully.

Tax Lien Subordination and Discharge

If the only thing standing between you and a clean financial slate with the IRS is a deal with another creditor, then you can fill out a form to either subordinate the tax lien (essentially giving one select creditor higher priority over the IRS’s claim) or discharge a single asset or property to use as collateral.

If you’re worried about your tax debt with the federal government, it may be in your best interest to seek professional tax help to resolve your situation as fast as possible.

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