A tax lien is different from a levy. A levy takes property. A lien is a claim against it. But a public lien can hurt as much as a seizure, because it tells every lender, supplier, and buyer that the IRS stands in line ahead of them. Understanding what it does, and what can lift it, is critical for any business owner who gets the notice.
What a federal tax lien is
According to the IRS, a federal tax lien is the government's legal claim against your property when you neglect or fail to pay a tax debt after the IRS has assessed it. The IRS files a public Notice of Federal Tax Lien to alert creditors that the government has a claim. The lien is the legal claim. The notice is the public filing of it.
What the lien covers
- The IRS says the lien attaches to all of your business property and rights to that property, including accounts receivable.
- It also reaches assets you acquire while the lien is in effect.
- It generally applies to the entity that owes the tax. A lien against a sole proprietor reaches personal and business assets, since there is no legal separation.
How a lien affects the business
- Credit: the IRS notes that once the Notice is filed, it may limit your ability to get credit.
- Loans and leases: lenders typically require the IRS's claim to be addressed before extending financing.
- Selling assets: buyers and title companies will see the lien, which complicates sales and refinancing.
- Vendor and customer relationships can be affected because the filing is public.
Lien vs levy
A lien secures the government's interest. A levy actually seizes property. A lien often precedes a levy, and both can occur in the same case. For the seizure side, see IRS bank levy on a business account.
How to get a lien released
The IRS says paying the debt in full is the best way to get rid of a lien, and that the IRS releases the lien within 30 days after you pay. Check that the release actually happens, and ask for a copy for your records, since lenders may want proof.
Other options to lessen the impact
- Discharge: removes the lien from specific property, which can help when you are selling an asset.
- Subordination: does not remove the lien, but allows other creditors to move ahead of the IRS, which can make it easier to get a loan.
- Withdrawal: removes the public Notice and means the IRS is no longer competing with other creditors, but you still owe the debt. Eligibility rules apply, including a filing compliance requirement for one option.
Appeal rights
The IRS says that under certain circumstances you may be able to appeal the filing of a Notice of Federal Tax Lien, and points to Publication 1660, Collection Appeal Rights, for details. Deadlines apply, so read any lien notice you receive immediately and check the timing.
What to do if you receive notice of a lien
- 1Read the notice and confirm the tax periods and amounts.
- 2Check the figures against your own records and IRS transcripts.
- 3Decide how you will resolve the debt: full payment, a payment plan, or another option. See small business tax debt relief.
- 4If a loan, sale, or refinance is pending, ask a professional about discharge or subordination.
- 5After the debt is resolved, confirm the release is filed and that credit reports reflect it.
Lien and payment plans
Having a payment plan does not automatically prevent a lien. Depending on the amount and the plan, the IRS may still file one. When you set up an agreement, ask whether a lien will be filed and under what conditions it could be withdrawn. See IRS payment plans for small business owners.
State tax agencies can file their own liens, and the rules and timelines differ by state. An IRS release does not clear a state lien.
Our IRS resolution service can help you evaluate release, discharge, subordination, or withdrawal options. To get help with your business tax situation, bring the lien notice and your latest IRS correspondence. Outcomes depend on your facts.
