Question: IRS Tax Lien: what is its effect, if any, after the 10-year statute of limitations has expired?
My uncle has unpaid income tax liabilities from 1999, 2000 and 2001, amounting to around $25,000 in each year. With accrued interest and penalties, the amount now owing is probably well north of $100,000. He received Notices of Federal Tax Liens shortly after the taxes went unpaid–the last notice was probably in 2002.
When the 10-year period has run on each of these Notices, does the IRS file a Release of Lien or does it release automatically? I’ve also read that the IRS can re-file liens–does that require special circumstances, or can they simply renew the 10-year period over and over again? Finally, what if my uncle wanted to purchase real estate at some later date: if the liens have expired and are unenforceable, would his later sale of that property be affected in any way?
Thanks in advance for your replies.
Answer: First of all, the IRS isn’t the ravenous beast that everyone likes to think it is. For the most part, the IRS is that lazy dog in the yard that chases squirrels and sleeps most of the time. I’ll answer your questions in the order you asked them:
1. When the 10-year period has run on each of these Notices, does the IRS file a Release of Lien or does it release automatically?
The liens automatically release, but the IRS won’t automatically send your uncle a formal Certificate of Release. He’ll have to request that himself. I would give it some time before requesting the Certificate of Release to make absolutely certain the liens are gone. Sometimes extenuating circumstances can extend the lien enforcement period somewhat.
2. I’ve also read that the IRS can re-file liens–does that require special circumstances, or can they simply renew the 10-year period over and over again?
The IRS technically has the capability to re-file a lien, but it rarely does so. If the IRS were interested enough in any of your uncle’s property, it would already have started seizing things. Thus, the IRS really has no need to ever re-file a lien. It either seizes assets during the lien period or it doesn’t. The provision is there as a “just in case” measure, but it isn’t something the layperson should really worry about.
3. Finally, what if my uncle wanted to purchase real estate at some later date: if the liens have expired and are unenforceable, would his later sale of that property be affected in any way?
The only way a tax lien would impact your uncle purchasing property would be on the negative impact it has on his credit report. Unlike most debts, tax liens can hang around for 15 years if they go unpaid. Since ten years have already passed, those liens don’t have much longer to go before they’re gone. Plus, the older something is, the less impact it has on your overall score.
When he sells his home he will need to request the Certificate of Release from the IRS and file it with either the land records office in his county or the Secretary of State’s office, depending on where he lives.
Once the tax lien expires, the debt is unsecured and falls under the statute of limitations for unsecured debt enforcement in your state (which has probably already passed). Yes, the IRS can pass it to a collection agency, but because so much time has passed the collection agency will neither have the legal right to place the debt on his credit report or sue him. Once the tax lien officially releases, its over. Just tell him to hang in there.
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