Consumer advocates are voicing their concerns about the Internal Revenue Service's use of tax liens to collect taxes from consumers. Taxpayers who find they are unable to pay their tax bill often see a lien placed on their credit report, which results in a lower credit score. Like other types of adverse information, a tax lien will remain on an individual's credit report for up to seven years, even after they have settled their tax bill.
As a result, struggling consumers will find it more difficult to obtain competitive rates, loans, employment and even tenancy. Additionally, advocates say tax liens are an ineffective method of collecting taxes, according to Consumer Reports.
A 2010 report to Congress reveals the IRS filed tax liens against 5 million Americans within the past seven years; however, the agency has no data that the liens have resulted in improved tax collection, the consumer group says.
Individuals who owe taxes should explore ways to pay their bill in full to avoid having a lien placed on their account. While dipping into savings or using home equity may not seem ideal, many tax professionals recommend exploring these methods before skipping out on a tax bill.