Real Estate Terms Dictionary
Federal (Tax) Lien
Definition of 'Federal (Tax) Lien'
A Federal (Tax) Lien is a federally authorized lien or security placed against any and all assets of a taxpayer who has unpaid back taxes.
What is a Federal Tax Lien:
The federal lien allows the Internal Revenue Service (IRS) to secure or otherwise requisition the taxpayer's property in order to secure payment. Federal tax liens can be assessed for unpaid taxes of any kind,
including income, self-employment, gift or estate taxes.
The federal lien is different from the federal levy, as the latter denotes the government's actually taking into possession the assets, not just placing a hold on them.
The steps that need to be completed before a tax lien can be made public are the following: the IRS must first assess the liability, then notify the owner through a Notice and Demand for Payment, and after that notify the creditors by making public a Notice of Federal Tax Lien.
The IRS's official website mentions several options a property owner has in order to have the federal tax lien removed or at least its impact minimized. The first one is to pay the entire amount due. Other options offered by the IRS include selling the property free of lien after the owner has submitted a Certificate of Discharge, or maintaining the lien but allowing loans or mortgages to be secured against the property.
Amendment of Federal (Tax) Lien
It is a Federal Tax Lien document that suffered additions or any type of changes. Examples of Federal Tax Lien Amendments are the following: refilings and certificates of discharge, revocations, withdrawals, releases, and other changes or additions done to the original Federal Tax Lien document.
Assignment of Federal Tax Lien
It refers to the process of transferring a federal tax lien to a third party, usually an investor who can then take the property to the foreclosure auction. This is one way that allows governmental agencies to collect the money owed on property taxes.
Investing in tax liens can have a significant return of investment, which can make this a sought-after type of investment.
Continuation of Federal Tax Lien
In the case of a joint ownership, depending on state legislature, when two or more persons are the owners of a property, a Federal Tax Lien may also be shared by all the joint owners. In case one of the owners dies, for example, the Federal Tax Lien can continue to affect the surviving owner(s). This is called Continuation of Federal Tax Lien.
Discharge of Federal Tax Lien
The discharge of a Federal Tax Lien is done through a Certificate of Discharge issued by the IRS, which allows the owner to sell the property and pay off the federal tax debt. Another solution, less common, is for the owner to sell the property and pass the lien on to the new owner.
According to TaxationLawFirms.com, it usually takes around 45 days to complete a Certificate of Discharge filing, and once it is approved the lien on the property is discharged. However, the IRS is entitled to a part of the proceeds in exchange for the release of the lean.
Release or Withdrawal of Federal Tax Lien
The IRS will release the lien within 30 days of the federal tax having been paid in full. This is also known as Withdrawal of Federal Tax Lien.
Partial Release of Federal Tax Lien
In some cases, the same notice of federal tax lien can be filed against more than one taxpayer. This means that there is more than one person who shares the liability. When one or more of them pay their share of liability, they will have their part of the lien released. This is recorded in a Partial Release of Tax Lien document.
The lien continues to be in effect against the other person(s) appearing in the Notice of Lien.
The glossary is intended to provide real estate professionals and home buyers with a basic understanding of various specialized terms related to legal rights over a property. All terms appear in public records such as ACRIS. We do not take responsibility for the legal accuracy of the definitions provided and ask that use of these explanations in a legal setting be made only after checking with a lawyer or another specialist in the field.