What Is a Federal Tax Lien? How It Affects Your Business
Quick Answer
A federal tax lien is the IRS legal claim against ALL of your business property — business and personal — when you fail to pay a tax debt after receiving a demand for payment. The IRS files a public Notice of Federal Tax Lien (NFTL) at your county courthouse, blocking bank financing, triggering credit alerts, and preventing business sales until the lien is released.
What Is a Federal Tax Lien?
Under Internal Revenue Code Section 6321, a federal tax lien arises automatically when: (1) the IRS assesses a tax liability, (2) the IRS sends a formal Notice and Demand for Payment, and (3) you neglect or refuse to pay within 10 days. The lien attaches to ALL current and future business property — equipment, inventory, real estate, bank accounts, and receivables.
How a Federal Tax Lien Affects Your Business
- Bank financing blocked: Traditional banks and SBA lenders will not approve loans with an active IRS lien. SBA explicitly prohibits guarantees for businesses with active tax liens.
- Business sales complicated: Buyers require lien payoff at or before closing. Title companies will not insure title over an active federal tax lien.
- Government contracts at risk: Contractors with active tax liens are flagged in SAM.gov and may be suspended from federal contracting.
Federal Tax Lien vs. IRS Levy — Key Difference
A federal tax lien is a legal claim — it does not take property, but prevents selling or borrowing against it. An IRS levy is an active seizure — the IRS actually takes money from your bank account. A lien typically precedes levy action.
How to Release a Federal Tax Lien
- Pay in full: The IRS must release the lien within 30 days of full payment (IRC Section 6325).
- Tax debt financing: A specialized lender uses IRS tax lien subordination to pay the IRS directly and release the lien within 30 days — without requiring the full cash balance upfront.
- IRS Installment Agreement: Lien stays active for the entire 72-month repayment period.
- Offer in Compromise: Lien released only after the OIC payment is completed (12-24 months later).
Frequently Asked Questions
How long does a federal tax lien last?
Up to 10 years from the date of assessment — the Collection Statute Expiration Date (CSED). The IRS can re-file the lien before the CSED to maintain the public record beyond 10 years.
Can the IRS file a tax lien without warning?
The lien arises automatically when tax is assessed and unpaid. The IRS must notify you within 5 business days of filing the public NFTL. Before the CP90 levy notice, you receive prior balance-due notices.
Can I open a new bank account with a federal tax lien?
Yes — the lien attaches to new accounts once funded. The IRS can then serve a bank levy on the new account. Opening new accounts does not avoid IRS enforcement.
Is Your Business Facing IRS Tax Debt?
Tax Funds connects businesses with IRS 941 payroll tax debt, federal tax liens, IRS bank levies, and TFRP situations with specialized lenders who pay the IRS in full. No upfront fees. Decision in 24-72 hours.
Sources: IRS.gov, Internal Revenue Code, IRS Publications 594 and 1. Tax Funds is a financing marketplace — not a lender, CPA firm, or law firm. Informational purposes only.