Can the IRS file a lien without going to court?

A taxpayer searching around the internet asked this question. It is a very good question because it asks about the reach — and the limits — of the IRS’s power to reach into our lives whether we like it or not.

Liens 101: What is a Lien, Anyway?

For those unfamiliar with the term, a “lien” is essentially a claim — someone claims you owe them money.

In certain situations, the person (or business, or government agency) making the claim can file a document announcing this claim with the County Clerk or other public records authority.

By filing a lien with the County Clerk, the claimant announces to the world (and especially to credit reporting agencies) that the claimant says you owe it money.

It’s like taking a private debt (or claimed debt) and shouting from the rooftops to everyone around: “you owe me money!”

And Why Should I Care?

This can have the real and negative effect on your life by damaging or even ruining your credit score, making it harder, more expensive, or even impossible to get a loan, mortgage or other credit. It can also make you ineligible for certain jobs.

The IRS uses the federal tax lien as part of its set of tools to make sure it collects taxes it says are owed. The IRS files a lot of liens. For example, in the last month, in New York City, on the island of Manhattan alone, the IRS filed 580 liens. That’s almost 27 liens filed every business day.

Don’t You Have to Owe a Lot to Have an IRS Lien Filed?

How much do you have to owe for the IRS to file a lien?

It is amazing how little it can take: it took owing as little as $41.06 to get the IRS to publicly file a federal tax lien. This $41 dollar lien, by the way was filed today (the date of this writing), February 12th, 2009.

The largest lien filed in Manhattan in the last month was for over $8 million dollars.

So, with that background, getting back to the reader’s question, putting it into Q & A form:

Q: Can the IRS file a lien without going to court?

A: Yes. The IRS does not have to go to court to file a federal tax lien.

One of the things that makes owing money to the IRS (and most or all state taxing authorities) so dangerous to taxpayers, whether they are individuals or businesses, is that the IRS has powers to compel payment that reach far beyond the powers of ordinary creditors.

If you owe the IRS back taxes, first, think of the IRS, the government as your creditor, like a department store, or a credit card company, your car company, your landlord, your bank that gave you a mortgage on your house.

Then, second, notice the difference between the IRS and your banker, your landlord, your car company: the IRS does not have to sue you and get a money judgment against your to file a lien against you.

For the IRS, It’s as Easy as 1-2-3, A-B-C, Do-Re-Mi

Apologies to the Jackson 5.

But, seriously, all the IRS has to do to be able to file a lien is (1) determine that you owe money, (2) tell you that you owe it and ask you to pay it, and (3) wait ten days. If you have not paid in full by the time those 10 days are up, the IRS has the power and authority to file a piece of paper — a notice of federal tax lien — with the local public recording authority, be it the County Clerk or other.

While, generally, the IRS does not file a notice of federal tax lien on the eleventh day, it certainly does have the power to do so, or to do so at any time after those three standards are met.

The filing of a notice of federal tax lien makes what was the extremely private matter of your taxes very, very public. And the IRS is empowered to do all this by only meeting the three criteria described above. The IRS simply does not have to walk through even a single door of a single courthouse to do this (unless the County Clerk is in the court house). No law suit needs to be filed, litigated, or won.

Where other creditors have to prove their case and persuade a judge, a jury or both, all the IRS needs is, by contrast, the stroke of a pen.

In the IRS’s own words:

Once these requirements are met, a lien is created for the amount of your tax debt. By filing notice of this lien, your creditors are publicly notified that we have a claim against all your property, including property you acquire after the lien is filed. This notice is used by courts to establish priority in certain situations, such as bankruptcy proceedings or sales of real estate.

The lien attaches to all your property (such as your house or car) and to all your rights to property (such as your accounts receivable, if you are a business).

This power and ease to file a lien is enormously different from pretty much all other creditors. It is one of many reasons why you don’t want to owe money to the IRS, and why you probably would be better off owing money to almost anyone else. And, why if you do owe money to the IRS you want to take action to change that.

You can find out more about avoiding trouble with the IRS (or starting to get out of trouble, if tax trouble is already here) by getting my free special report, “7 Big Mistakes Taxpayers Make and How to Avoid Them to (Legally) Keep the IRS OUT of Your Wallet, OUT of Your Bank Account, and OUT of Your Paycheck,” by clicking here.

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