Can the IRS File a Tax Lien Against My Business Assets?

Learn What to Expect and How to Appeal IRS Tax Liens

If you don't pay your business taxes, the IRS can issue a tax lien against your business assets. Sometimes, the IRS can even issue a tax lien against business assets for unpaid personal taxes. Tax liens make it very hard to sell, transfer or borrow against your assets, and they put you at risk of asset seizure that may effectively shut down your business.

Here's what you need to know to protect your business assets.

Key takeaways

• IRS tax liens – created when you owe unpaid business taxes or penalties to the IRS.
• Business assets – liens attach to all business assets, including real estate, inventory, cash, and bank accounts.
• Personal risk – business liens may attach to your personal assets if you own a sole proprietorship or a partnership.
• How to avoid – if you proactively set up payments, the IRS may not file a tax lien.
• Resolution options – Once a tax lien is filed, you may be able to avoid collection actions by setting up payments. Subordination or discharge can make it possible to sell or transfer assets.

What is a business tax lien?

A business tax lien is a lien issued by the IRS or a state tax agency against a business. The lien is in the business's name and attached to the business's EIN. 

If a business incurs tax debt, the IRS may file a Notice of Federal Tax Lien (NFTL) with the county clerk. The NFTL becomes part of the public record. It attaches to everything the business owns, and depending on the structure of the business, may also attach to the business owner's personal assets.

When does the IRS file tax liens against businesses?

A tax lien may arise if you owe taxes due to:

• Filing a return and not paying
• Incurring penalties for filing or paying late. 
• IRS adjustment to a return that leads to a balance due.
• Failing an audit and incurring a tax liability.
• Not filing a return, and the IRS estimates the tax due on your behalf.

Business tax liens may be related to unpaid payroll taxes, excise taxes, corporate income tax, or any other unpaid business taxes. 

The IRS can file a tax lien for any level of tax debt, but typically, the agency doesn't file a tax lien unless you owe at least $10,000. You can typically avoid a tax lien by contacting the agency and setting up payments on your tax debt.

What to expect if the IRS files a tax lien against your business

The IRS doesn't have to alert you before filing a tax lien against your business – but the agency must assess the tax against you and send at least one demand for payment before filing the tax lien. Then, within five days of filing the lien, the IRS will send you a notice that it has been filed. 

That notice gives you 30 days to request a collection due process (CDP) hearing. The hearing typically happens over the phone and gives you the chance to:

• Explain that the lien was filed in error – the IRS must remove all liens filed in error.
• Show that the lien creates financial hardship – if so, the IRS may remove it, but at this point, they'll generally only do that if doing so makes it easier for you to pay your taxes.
• Talk with the IRS about payment plans or relief options. 
• Contest the validity of the tax debt – but only if you haven't had a chance to do so before. 

You can appeal if you don't agree with the results of the CDP hearing, but that can be tricky, and you should be prepared to show new information to back up your point. A tax professional experienced with business tax problems can be critical for this part of the process. 

If you don't request a CDP hearing within 30 days of the lien filing notice, you still have the right to request an equivalent hearing for up to a year. The equivalent hearing is similar to a CDP hearing, but you can't appeal if you don't agree with the results.

Otherwise, your option is to let the lien stand. If you don't appeal the lien, it will attach to all of your assets. If you sell an asset, the proceeds will go to the IRS (up to the face value of the lien), but you'll also have to do extra paperwork to get the sale to move forward while a lien is attached to your assets – more on that below. The lien can also make it very difficult to sell your business.

Federal tax liens lay the groundwork for the IRS to seize your business assets. The IRS may seize business equipment, inventory, real estate, or any other real or personal property owned by the business. The IRS may also freeze your business bank accounts, seize investment accounts, or even garnish incoming payments – for example, transfers from your payment processing software or rents from your tenants.

How business structure affects tax liens

Your business structure has a strong impact on how business tax liens attach to personal assets. It also influences how an individual tax lien affects your business assets. Here's a breakdown.

Business structure	Business tax liens attach to personal assets	Exceptions
Sole prop	Yes	No
Partnership	Yes	Limited liability partners may only be liable up to their investment in the company
LLC or partnership taxed as S-corp	No	Shareholders may be liable for tax debt if they comingle personal/business funds or if they're a responsible person for trust fund taxes
Corporation	No	Shareholders may be liable for tax debt if they comingle personal/business funds or if they're a responsible person for trust fund taxesNote that if your LLC has not elected to be taxed as an S-Corp, then it is either a sole prop (single-member LLC) or a partnership (multi-member LLC), and although you may have immunity from some business debts, you and your partners are personally liable for most tax liabilities.

Options for resolving business tax liens

There are several ways that you may be able to resolve your business tax liens. The right option depends on your business finances, what you're trying to do. 

• Installment agreement – if you set up monthly payments on your business tax debt, the IRS will not act on the lien (ie, they will not seize your assets as long as you make timely payments), and they may even remove the lien from the public record in some cases. There are streamlined installment agreements and express trust fund installment agreements for businesses.
• Discharge – A lien discharge removes the lien from a specific piece of property. For example, say that you want to sell an asset and the proceeds from the sale will be less than what you owe the IRS, then you can ask to have the lien discharged so that you can sell the asset, but typically, the IRS will only agree if you send them the proceeds from the sale.
• Subordination – Lien subordination is when the IRS lets its lien fall in priority behind another lender. For example, if you want to take out a loan against a piece of equipment so that you can pay off your tax liability, you'll need to get the IRS to subordinate its tax lien behind the lender's lien.

Once you pay in full, the agency will release the tax lien. A release means that you no longer owe the lien, but it may still be in the public record. The IRS will also release the lien if your business qualifies for an offer in compromise.

To get the lien removed from the public record, you must request a withdrawal. After full payment, the IRS may withdraw the lien if you stay current on your filing and payment obligations for a few tax periods. In some cases, you can get the IRS to withdraw the lien before it's released – for example, if you set up payments secured by direct debits, and you owe under a certain amount.

FAQs

Here are some of the biggest questions business owners have about federal tax liens:

How does a federal tax lien affect my business?

A federal tax lien filed under your business's tax ID number immediately attaches to all of your business assets and to your personal assets if you own a sole proprietorship or a general partnership. A tax lien filed under your individual tax ID number may attach to business assets that you own or any shares that you own of a business.

What assets can the IRS place a lien on?

Liens attach to all real and personal property of the taxpayer named on the lien. The IRS has the right to seize most assets, but there are exceptions for a small amount of income, workers' compensation, disability pay, certain pensions, tools of the trade (limited amount), primary residences (up to a certain value), and primary vehicles (up to a certain value).

Can I operate my business with a tax lien in place?

Yes – the lien will only affect you if you try to sell or transfer property or if the IRS decides to move forward with asset seizure. To stop the IRS from seizing assets, work with the IRS to set up a payment plan, and if possible, request to have the lien be withdrawn from the public record. 

How can I remove a federal tax lien?

You can get the lien released (ie, you have no obligation to pay it) by paying in full or getting the IRS to approve a settlement. The IRS may withdraw the lien from the public record if you owe under a certain threshold, set up payments, and make at least three payments. There are also ways to get the IRS to discharge or subordinate the lien so that you can sell, transfer, or borrow against your property.

Will a tax lien affect business credit?

Yes, the tax lien will affect your ability to take out loans or obtain credit because it's a public record. However, it will not appear on your business credit report.