Sunday, April 14, 2024
HomeTaxUnderstanding the Impact of IRS Tax Liens on Your Taxpayer Liabilities

Understanding the Impact of IRS Tax Liens on Your Taxpayer Liabilities

Few things strike fear in the hearts of men and women more than the IRS. It seems that, throughout the nation, they’re one of the most powerful entities in existence. 

It was Benjamin Franklin who was quoted as saying, “Nothing is certain except death and taxes.” He wasn’t kidding! For one reason or another, if someone fails to pay a tax debt, IRS tax liens can be enforced. This means that, against your property, the government has a legal claim. Including financial assets, personal property, and real estate, the government’s interest in all your property is protected by the lien.

The following will be an examination of IRS tax liens, their impact, and how to get rid of them.

IRS Tax Liens – How Did This Happen?

After the following, a federal tax lien would exist…

You:

  • By the date they are due, you refuse or neglect to fully pay your taxes due.

The IRS:

  • Explaining how much you owe, the IRS sends you a bill.
  • Your balance due is entered into “the books” and your liability is assessed.

The Notice of Federal Tax Lien – a public document – is filed by the IRS. This is the government alerting creditors that they have a legal right to your property. 

How Are You Affected by a Lien?

An IRS federal tax lien can affect you in any number of ways, including the following:

  • Bankruptcy – If you file for bankruptcy, even after the bankruptcy, your lien, Notice of Federal Tax Lien, and tax debt may continue.
  • Business – Including accounts receivable, the lien attaches to all rights to business property and all general business property.
  • Credit – Your ability to get credit may be limited once the Notice of Federal Tax Lien is filed by the IRS.
  • Assets – During the duration of the lien, it attaches to all your assets including vehicles, securities, and property – and to future assets acquired during that time.

Avoiding a Lien in the First Place

Shortly, you’ll see what you can do to get rid of a lien. Of course, avoiding the lien altogether would be preferable. If, in a timely manner and in full, you file and pay all your taxes, you can avoid a federal tax lien.

If you get letters from the IRS because you weren’t able to file and/or pay on time, this correspondence should not be ignored. If the full amount you owe can’t be paid on time, to help you settle your tax debt, payment options are available that stretch out over a specified period of time.

Levies and Liens – They Are Not the Same

You may have heard of a levy, versus a lien. When you don’t pay your tax debts, the government secures interest in your property courtesy of a lien.

To pay your tax debts, on the other hand, a levy literally takes your property. If, to settle your tax debt, you don’t make arrangements or pay, any type of personal or real property that you have an interest in or own can be levied, seized, and sold by the IRS.

Now for the big question…

How Can You Eliminate a Lien?

Naturally, the preferable method of ridding yourself of a federal tax lien is to pay your tax debt.  Within 30 days after your tax debt has been paid off, the IRS releases your lien. However, several options for reducing lien impact exist when conditions are in the best interest of both the taxpayer and the government.

  • Subordination – A lien is not removed by subordination. Rather, other creditors are allowed to move ahead of the IRS. This means that you may still be able to get a mortgage or a loan. Eligibility must be determined.
  • Discharge of property – From a specific property, a lien is removed by a “discharge”. Eligibility is determined by a number of IRC provisions (Internal Revenue Code).

Here’s another way you may be able to get rid of a tax lien.

Withdrawal

The Public Notice of Federal Tax Lien is removed by a withdrawal. It assures that, with other creditors, the IRS is not competing for your property. The amount owed is still your responsibility, however. You remain liable for it.

The Commissioner’s 2011 Fresh Start Initiative provided two additional withdrawal options…

Option One

The withdrawal of your Notice of Federal Tax Lien may be allowed by this option after the release of the lien. What determines your eligibility? Your lien would need to be released because your tax liability was satisfied and:

  • For the past three years in filing, you are in compliance – all business returns, individual returns, and information returns;
  • On your federal tax deposits and estimated tax payments (as applicable), you are current.

Option Two

Withdrawal of your Notice of Federal Tax Lien may be allowed by Option Two if you have converted – or entered in – your regular installment agreement to a Direct Debit Installment Agreement. What’s included in general eligibility?

  • On any previous or your current Direct Debit Installment Agreement, you cannot have defaulted.
  • Three consecutive direct debit payments have been made.
  • With other payments and filing requirements, you are in full compliance.
  • The full amount you owe must be paid by your Direct Debit Installment Agreement before the Collection Statute expires or within 60 days – whichever comes first.
  • A total of $25,000 or less is owed by you (more on this shortly).
  • You qualify as a taxpayer (certain businesses and individuals).

What if you own more than $25,000? If that’s the case, prior to requesting withdrawal of the Notice of Federal Tax Lien, you must pay down the balance to reach $25,000.

Federal Versus State Tax Liens

Are federal and state tax liens one and the same? Not exactly.

State tax liens, as with federal tax liens, attach to all personal and real property owned now and acquired later on. However, state tax liens only apply to property that the taxpayer has rights to within the state, or property that they own within that state. Absolutely everything you have rights to or that you own is affected by federal tax liens.

What’s more, IRS tax liens are, for those who use the right outlets, searchable and detectable because they’re part of a public record. However, tax liens should not affect your credit score nor should they appear on your credit report. But remember, that doesn’t mean they can’t be discovered and, in some cases, create prejudice where certain entities are concerned (you may not be able to get a mortgage, buy a car, get a credit card, secure a loan, get hired for a job, etc.)

If a property has a lien against it, it probably exists because back taxes were not paid by the owner. Though they may want to sell the land, they may not be in a position to do so. Does this mean that, if a lien has been filed against your property, you cannot sell it or list it on the market? No, it does not.

Even If your property has a lien on it, you can list it. In fact, to pay back the taxes you owe, putting your home on the market and selling it may be the best way, depending on your circumstances. Get professional assistance with and advice on this if the situation arises.

Do IRS Tax Liens Have an Expiration Date?

Before we explore how long IRS tax liens last, remember that ignoring or trying to avoid an IRS tax lien is inadvisable. The IRS means business. They’re going to do what they have to in order to get their money.

That said, for only 10 years, at the very minimum, an IRS tax lien can last. However, it can go past 10 years if:

  • Within the required refiling period, the IRS re-files.
  • An Offer in Compromise is filed by the taxpayer; an agreement to extend the statute of limitations for a federal tax lien enforcement accompanies an agreement to release the federal tax levy; or
  • In connection with the execution of a repayment of the tax debt installment agreement, the statute of limitations is extended.

Due to the following events, the period of collection may be suspended:

  • The court seizes the taxpayer’s assets
  • A Notice of Deficiency is issued
  • For six months or longer, the taxpayer resided outside of the United States
  • The wrongful issuance of a taxpayer property lien
  • Wrongful taxpayer property seizure
  • Bankruptcy was filed for by the taxpayer

Defense Tax Partners – We Can Help You Understand and Deal With IRS Tax Lien Impact 

If there’s one thing that never changes where your income tax is concerned, no matter how often the tax laws and/or forms may change, is how confusing the entire ordeal can be. If you owe an exorbitant amount on your taxes, it gets even worse.

The good news is, that there’s help available with basically anything and everything related to tax debt. Don’t tackle dealing with the IRS on your own. You need a professional team on your side.

We are Defense Tax Partners. With the help of our team, your chances of the following improve exponentially:

  • Stopping or preventing property seizures
  • Removing IRS tax liens
  • Resolving sales and payroll tax debt
  • Stopping or preventing bank levies
  • Stopping or preventing wage garnishments
  • Removing penalties and interest charges
  • For a fraction of what you owe, settling your IRS tax debt

Defense Tax Partners is a tax advocacy service whose dedication to protecting businesses and individuals against IRS tax devastation is unwavering.

Your life, your financial future, and more can be negatively affected by problems with the IRS. Don’t let that happen! If you have tax problems, an IRS Offer in Compromise may be the best solution for all parties involved.

More from MoneyVisual

Recent Posts

Most Popular

Educational Topics