Massachusetts Taxpayer's Guide to State Tax Liens
If you don't pay your individual or business taxes in Massachusetts, the Department of Revenue can attempt to collect the debt involuntarily. The Commonwealth has a number of tools at its disposal for involuntary collections, including asset seizures and wage garnishments, but generally, the first step in the process is a tax lien.
Worried about a tax lien in MA? Wondering how they work? Trying to get a tax lien removed? In all cases, you may want to reach out to an MA-based tax professional. Here's an overview of how tax liens work in The Bay State.
What Is a MA Tax Lien?
A tax lien is a legal claim to your assets. Once filed by the collector, the lien becomes a public record that attaches to all of your real and personal property. Tax liens secure the state's interest in your property, and they make it very difficult for you to sell, transfer, or borrow against your property.
Tax Liens Vs. Property Tax Liens
This guide is about tax liens issued by the DOR for unpaid state taxes. This is very similar to tax liens issued against your real estate for unpaid property taxes, but not exactly the same.
If you don't pay your property tax, your city or town can file a lien against you. Then, the city or town can foreclose against you, or they can sell the tax obligation to a third-party investor who can foreclose against you.
In both cases, the lien represents a legal claim to your assets. However, with a tax lien for unpaid income or business taxes, the state doesn't have to focus on your real estate. Instead, when they decide to levy your assets, they're much more likely to go after wages and/or bank accounts. That said, however, a tax lien lays the groundwork for the state to go after any of your property if desired, up to the amount owed.
How Much Do You Owe on the Tax Lien?
Tax liens note the type of tax, the assessment date, the amount you owe, and the total of penalties and interest so far. However, once the lien is filed, interest and penalties will continue to accrue on your account. By extension, you may owe more than the face value of the lien. To see how much you owe, contact the MA DOR directly.
Also, note that the state may add collection fees or lien costs when they file the lien. This can increase your tax bill.
What if You Disagree With the Tax Bill?
If you disagree with the tax bill, you need to dispute or appeal. There are strict timelines for this process, and you should work with a pro to make sure you meet the deadlines. If you dispute the tax, the DOR will suspend the lien.
How to Avoid Tax Liens
The best way to avoid a tax lien is to pay your tax bill in full and on time. If that's not possible, look into monthly payment plans. As long as you set up the payment plan before the lien gets filed and you can pay off the tax debt in 12 months, the MA DOR will issue a lien waiver.
You may also be able to avoid a lien by requesting an MA offer in compromise. This is when the state lets you settle your tax liability for less than you owe, but to qualify, you must prove that you don't have income or assets that allow you to pay in full.
What to Expect With an MA Tax Lien
If you receive a Demand for Payment and don't pay, the DOR will assign your account to the Collections Bureau. The Bureau will send a Notice of Collection or a Final Notice, and a collector will try to contact you about your account. If you don't respond or they don't reach you, they will most likely file a tax lien against you.
The Notice of Massachusetts Tax Lien gets recorded at the Secretary of State's Office and at the Registry of Deeds in the county where you live and in any counties where you own property. You may not get a notice before the lien is filed, but once the lien has been recorded, you will be notified.
How Tax Liens Affect Your Property
Even if you've never had a tax lien issued against you, you have probably dealt with liens in other aspects of your life. That can help you understand how tax liens work.
To explain, imagine that you're buying some real estate. Before paying the other party, you pay a title company to do a title search to look for liens. The title shows that the current owner owes $20,000 to a mortgage company, and the mortgage company has a lien on the property for that amount.
When you buy the property, you take steps to ensure that the current owner uses some of the proceeds to pay off the lien. Then, the lien gets removed from the title, and you get a clear title. However, if you borrow money against that property, that lender will, of course, put another lien on the title.
Here are some more details about how tax liens affect your property in different situations.
When you transfer property
If you transfer property, the lien will stay attached. For instance, say that you own an RV that you want to give your kids. If there is a tax lien attached to the RV, it will stay attached when you transfer the title. In some cases, the lien may make the transfer impossible.
When you die and leave property to your heirs
Unfortunately, even if you die, the lien will stay attached to your property. Say that you own a home worth $300,000 and there's a $100,000 tax lien on it. Your estate can sell the home, pay off the lien, and distribute the remaining cash to your heirs. Alternatively, your heirs could pay off the lien and then keep the home.
When you take loans against property
If you take out a loan against property, the lender places a lien on the property. This reduces the lender's risk and increases your ability to get loans. However, if there is already a tax lien against your property, most lenders won't give you another loan against that same property. However, if you can convince the MA DOR to put their lien at a lower priority than the lender's lien, you may be able to get the loan. This is called lien subordination, and there are more details below.
When you sell property
Generally, you won't be able to sell property if there is a tax lien attached to it. However, if the buyer wants to pay the lien, then, you can sell the property. Alternatively, you can try to get the lien removed so that you can sell the property — the MA DOR may be willing to do this in situations where selling the property allows you to pay your tax liability or when you have other property to secure the tax debt.
How to Get a Massachusetts Tax Lien Released
To get a tax lien released, you must pay the tax debt plus all interest and penalties. To get the lien released immediately, pay in verified funds (such as money orders, certified checks, etc). If you use a credit card, the lien will be released the next day.
Otherwise, if you write a personal check, the DOR will not release the lien for 30 days. That provides time to ensure that the payment has cleared your bank. If you pay by ACH transfer or debit card, they generally release the lien 20 days after you pay.
What if I pay and the state doesn't release the lien?
If the state fails to contact all of the agencies where you have liens registered, you can request a lien release. To do so, call (617) 887-6400 or write to the Chief of Collections Bureau, Massachusetts Department of Revenue, PO Box 7021, Boston, MA 02204.
Partial Lien Release
A partial release is when the MA DOR removes the lien from some of your property. For example, you may need a partial release if you want to take a loan against a piece of property to pay your tax bill or if you want to sell that property to pay your tax bill. When you apply for a partial release, you need to make a payment proposal or explain how releasing the lien will help you pay your taxes.
A lien subordination is when the MA DOR agrees to let its lien take priority behind another lien. Generally, this comes into play when you want to borrow money against an asset to pay your taxes, but the lender will only approve the loan if their lien takes priority over the state's tax lien.
How to Apply for Lien Subordination or Partial Release
To apply, you must send a letter with details about all of your property subject to the lien. Then, you must specify which property you want released for the lien and explain why. Your explanation should highlight how this helps you pay your tax liability.
Send that information to the following address:
Chief, Collections Bureau
Massachusetts Department of Revenue
PO Box 7021
Boston, MA 02204
The MA DOR may request additional information such as property appraisals before releasing or subordinating the lien.
Massachusetts Lien Vs. Levy
An MA tax lien is when the state issues a legal claim to your assets. A levy is when the state actually takes your assets. Levies can target your wages, bank accounts, investment accounts, personal property, and real property. The MA DOR uses both liens and levies to collect unpaid taxes.
Tax Lien Searches in Massachusetts
Tax liens are public records. That means that anyone who wants to put in the time can find liens against you. There is a public lien search tool on the MA Secretary of Commonwealth's website. Interested parties only need a last name to search for liens, and this database shows tax child support liens and tax liens.
In addition to incurring a tax lien, you may also appear on the Massachusetts Tax Delinquents List. The MA DOR adds people and businesses to this list if they owe over $25,000 in state taxes and haven't paid for at least six months. You will receive a written notice before your name or business name appears on the list.
Statute of Limitations on Tax Liens
Once filed, MA tax liens last for 10 years. As indicated above, a tax lien can survive a taxpayer. If you die before the 10-year statute of limitations expires, the lien will stay attached to your property until the statute expires.
Get Help With MA Tax Liens
Are you worried about a tax lien? Has the state already filed one against you? Trying to get it released or subordinated? Regardless of the situation, a MA tax pro can help.
Using TaxCure, you can search for local MA tax attorneys, CPAs, and enrolled agents. Then, you can narrow down your results to find someone who has dedicated experience with liens in this state.