How To Handle An Unrecognized Tax Lien On Your Credit Report
A tax lien is a government body’s legal claim to your assets that is filed as a result of unpaid income or property tax obligations. It prevents you from selling most types of property or refinancing debt that secures your property until amounts owed are repaid with interest. It also marks an important milestone in a process that could culminate in your home being foreclosed in a matter of months. When you further consider that tax liens are extremely detrimental to your credit standing and will remain on your credit reports for seven years from the date of filing, it should be abundantly clear that this is a situation requiring your immediate attention.
If you didn’t expect and/or don’t recognize the tax lien that was just added to your credit report, the first thing you’ll want to do is seek more information. Start by calling the court where the tax lien was filed and asking the clerk for records based on your case’s reference number. These are public records and should enable you to determine which taxes you supposedly owe and what (if any) property the lien applies to. This information may confirm something suspicious is going on – if, for example, the lien stems from delinquent property taxes in a state you’ve never been to – or help you realize that you do owe the amount in question.
If the tax lien is indeed legitimate, the best thing you can do is pay the balance as quickly as possible. Information about payment plans and other special arrangements can be found in our guide on What To Do If You Can’t Pay Your Taxes. But if there is no above-board explanation for an unrecognized tax lien, it could very well be the result of identity theft.
There are a number of ways that identity theft can lead to a fraudulent tax lien, and there are usually warning signs along the way. For example, if someone obtained employment using your Social Security number, their wages would be reported to the IRS as extra income earned by you, and you would likely receive deficiency notices from the IRS. Then, "if you neglected to dispute the inaccuracies as identity theft and ‘sat on it,’ … there is a strong possibility that you would end up with a tax lien," according to Brian Lapidus, managing director of the identity theft & breach notification group at Kroll Advisory Services.
That is just one case, however, and financial crimes manifest themselves in a variety of ways. So, with that in mind, here’s what to do if you suspect identity theft:
Immediate Steps to Take If You Suspect Identity Theft
Place A Security Freeze (And Fraud Alert) On All Three Reports: A security freeze completely prevents most parties from viewing your credit report, though exceptions do exist, such as for the government, existing creditors, collection agencies, creditors who prescreen you for offers and yourself. You must contact TransUnion, Experian and Equifax individually to put a freeze on each report, and a fee may apply each time you freeze and unfreeze a report.
However, the cost — $2 to $15, depending on your state — pales in comparison to the value of gaining complete control of your credit reports and thereby preventing anyone from applying for or opening a credit account without your consent. That’s especially true when you consider that many states allow the elderly and victims of identity theft to freeze and unfreeze their credit reports for free.
"It is the best, cheapest, and most effective thing that someone can do," said Steven J. Weisman, a senior lecturer of law, taxation and financial planning at Bentley University and author of numerous books about identity theft.
Another thing you’ll want to do is ask TransUnion to put a fraud alert on your credit report. TransUnion will be legally required to notify the other two major bureaus, and you will receive a confirmation letter from each one after the alert has been added to your file. It will remain in place for at least 90 days, even if you lift the security freeze on a report, warning potential creditors that you might be a victim of identity theft.
- Verify That The Social Security Administration Has Your Correct Income: Making sure your income is not overstated in the SSA’s records is a critical early step, given that liens can result from unpaid income tax obligations stemming from an identity thief obtaining employment in your name. You can check your records by signing into or creating your online Social Security account. This is actually good to do regardless of whether you suspect identity theft, as an emerging trend is for thieves to use someone’s personal information to create such an account before they can – much like the now-familiar process whereby tax refunds are stolen by thieves who submit online tax returns before victims.
Confirm Your Address With The Postal Service & All Creditors: An unrecognized tax lien is a clear sign that your identity could be compromised, and one of the most common ways that identity thieves delay their victims from finding out about the situation is by changing the victim’s address so that he or she does not receive critical correspondence.
Making sure the U.S. Postal Service has your correct address on file will help you avoid missing government notices, and perhaps explain why you did not hear about the unpaid balance before it resulted in a tax lien. You can do so by creating a "My USPS" online account. Confirming your address with creditors will serve a similar purpose as well as make it harder for identity thieves to rack up additional balances in your name. This can be done by calling your creditors or logging into your online accounts.
File An Identity Theft Complaint With The FTC: You can file a formal identity theft complaint with the Federal Trade Commission through its online complaint form. Once you have submitted your complaint, the FTC will generate an Identity Theft Affidavit. It is very important that you save and print this document, as it can only be viewed once through the online system.
The FTC Identity Theft Affidavit is a critical supporting document for investigations into suspected identity theft.
- File A Report With Your Local Police Department: Bring a copy of your FTC Identity Theft Affidavit to your local police department, along with a government-issued ID, proof of your address (e.g., a mortgage or utility bill) and any additional documentation you have concerning the suspicious lien. This will enable you to file an official police report, which, together with your FTC affidavit, will comprise your "Identity Theft Report."
Send A Certified Letter To The IRS (Or State/Local Equivalent): Government taxing authorities aren’t the most nimble organizations, which means they aren’t likely to spring to your defense in a case of suspected identity theft, but it’s worth giving the relevant organization a call to see if you can garner any useful information or advice. State and local tax agencies may be able to work with you to delay foreclosure proceedings, for example.
The Internal Revenue Service also has its own identity theft affidavit, which you can submit along with your FTC Identity Theft Affidavit, police report and driver’s license – to the following address:
Internal Revenue Service
PO Box 9039
Andover MA 01810-0939
- Consult An Attorney: A tax lien is a very serious official record that can result in significant disruption to your financial life as well as the loss of property. As such, if you do not owe the amount in question and the steps referenced above do not resolve the situation, it’s best to consult an attorney who specializes in identity theft. At the very least, you should be able to get a free initial consultation, during which you can ask important questions and seek advice for how to proceed. Given the magnitude of this issue, however, retaining the services of a reputable attorney is preferable.
Hopefully, taking these steps will enable you to get to the bottom of the suspicious tax lien and get it removed from the public record. Once you’ve accomplished that, dispute any related notations on your TransUnion, Experian and Equifax credit reports. You may also want to take a few additional measures to shore up the security of your personal information in order to prevent future identity theft incidents.
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