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Why a Federal Tax Lien Increases the Cost of a Surety Bond

Tax Liens Increase Surety Bond CostThere are a lot of factors that influence the availability and cost of most types of surety bonds. A federal tax lien is one of the most difficult circumstances to overcome. Even if an applicant has otherwise perfect credit, that notice of a lien can increase the cost of a surety bond by as much as 1000%. The question is why?

What exactly is a tax federal tax lien? A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets, including your business, that needs the bond. This is how a lien affects you:

  • Assets — A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.
  • Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit. (Including surety bonds)
  • Business — The lien attaches to all business property and to all rights to business property, including accounts receivable.
  • Bankruptcy — If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.

All of these greatly reduces the remedies available to the surety company if there were a claim on your bond as the IRS has already laid claim to all of your assets. Additionally, most surety bonds guarantee some kind of government code. If you don’t pay your taxes, the sureties view this as a violation of one of the most basic government codes. Shows a bad track record right off the bat. Finally, most surety bond rates are filed based on FICO credit scores. There is nothing I know of to tank a credit score faster than federal tax liens.

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2 thoughts on “Why a Federal Tax Lien Increases the Cost of a Surety Bond”

  1. Dinece says:

    Hello fellow Bruin,
    can you guide me as to what type of surety bond is used to guarantee Federal Tax Liens when applying for a discharge certificate with the IRS?

    Dinece Carmichael

    1. John Page says:

      i do not think such a bond exists

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