Notification of an IRS Tax Lien can be intimidating to process. But dealing with it doesn’t have to be. This is important to know: if you have a Federal Tax Lien filed against you, it’s important that you handle it quickly and effectively or you may lose your assets. These can include money in your bank account, an IRS bank levy, your car, and other property, your paycheck, wage garnishment, your retirement funds, and even your home.
The first thing to know is that you need to deal with the situation. The second thing to know is that there is help available.
If you don't respond to notifications from the IRS, they will then file a tax lien to protect the government. However, you, as a taxpayer, have rights and options to resolve your debt and release or withdraw the IRS tax lien.
If you fail to pay your tax debt, the government can file a lien against your property – including real estate, personal property, and financial assets. This protects their interest in your property in order to settle the debt. A federal tax lien is put into effect after the IRS:
- Determines your tax liability;
- Sends you a Notice and Demand for Payment (tax bill); and
- You have not paid the tax bill in time.
The IRS files a Notice of Federal Tax Lien, which is a public document stating that the government has a legal right to your property. The notice reads, "There is a lien in favor of the United States on all property and rights to property belonging to this taxpayer for the amount of these taxes, and additional penalties, interest, and costs that may accrue".
The filing of the notice can pose some major financial issues, such as making it difficult to obtain credit. However, there are two immediate remedies for this situation – to pay the IRS the amount you owe in back taxes, or to file an "Offer in Compromise.” Without one of these solutions, you cannot release this lien. If you don't qualify for an Offer, you can set up an Installment Agreement to pay your taxes over a period of time.
How an IRS Federal Tax Lien Can Affect You
- It can limit your ability to get credit since the IRS files a Notice of Federal Tax Lien which can show up on your credit report.
- The lien is attached to all of your existing assets and to future assets acquired during the time the lien is in effect, including property, securities, and vehicles.
- Liens attach to your business property, all rights to business property, and accounts receivable.
- Even if you file for bankruptcy, an IRS lien can continue after the bankruptcy – leaving you responsible for the outstanding tax debt.
Avoid a Lien
The best way to avoid a lien is to file and pay taxes, on time and in full. If something prevents you from doing so, you need to communicate with the IRS to make other arrangements. There are payment options and ways to settle your tax. Ignoring the correspondence from the IRS only compounds the matter. You would best be served by retaining a tax attorney like myself, to determine your best path forward in solving your tax debt.
Lien vs. Levy –What's the Difference?
Levies are different from liens. A lien is a legal claim against your property to secure payment of your tax debt, while a levy actually takes the property to satisfy the tax debt.
A federal tax lien comes into being when the IRS assesses a tax against you and sends you a bill that you neglect or refuse to pay it. The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property. You have the right to appeal if the IRS advises you of the intent to file a Notice of Federal Tax Lien. Your appeal rights are explained in IRS Publication 1660, Collection Appeal Rights PDF (PDF).
When filed, the Notice of Federal Tax Lien is a public document that alerts other creditors that the IRS is asserting a secured claim against your assets. Credit reporting agencies may find the Notice of Federal Tax Lien and include it in your credit report. An IRS levy is not a public record and should not affect your credit report.
Getting Rid of an IRS Tax Lien
The best way to get rid of a federal tax lien is to pay your tax debt - in full. The IRS will release your lien within 30 days of clearing your tax debt.
In all probability, however, the reason you haven’t filed or paid taxes is because of an issue preventing you from doing so. If there are special circumstances, and when conditions happen to be in the best interest of both the government and the taxpayer, there are other options for reducing the impact of a lien.
- Discharge of property — Allows property to be sold free of the lien. The seller or buyer can submit Publication 783, Instructions on How to Apply for Certificate of Discharge From Federal Tax Lien (PDF).
- Subordination — Does not remove the lien, but allows other creditors to move ahead of the IRS, which may make it easier to get a loan or mortgage. For more information review Publication 784, Instructions on How to Apply for a Certificate of Subordination of Federal Tax Lien (PDF).
- Withdrawal — Removes the public notice and assures that the IRS is not competing with other creditors for your property. If applying for a withdrawal, use Form 12277, Application for the Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien (PDF).
Do You Need Help Handling an IRS Federal Tax Lien?
If you find yourself facing an IRS Federal Tax Lien, we can help you deal with it by negotiating a suitable payment program (if you have the financial means to pay your back taxes) or to assist you in filing for an Offer in Compromise (OIC). For more information, simply contact our office for a free consultation, and we can help you get your tax problems handled and help you get a good night's sleep again.
To discuss your specific tax debt situation, please contact our tax firm for a free tax consultation. You can email me at Larry@TaxProblemSolver.com and we can dive into your issues and solve them. You can also call me at (855) 410-2882 or book your free consultation online by Clicking here.
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