- What is a Tax Lien?
- Can I Postpone a Tax Lien?
- How Long Does a Tax Lien Last?
- How to Remove a Tax Lien
- IRS Tax Relief Programs
- Tax Resolution Services for Debt Relief
What is a tax lien?
When you neglect your tax debt, the government may lay a legal claim against your property; this includes real estate, personal property, and financial assets. This claim is called a tax lien and is just one of the collection methods that the IRS has at its disposal.
When your delinquent tax account is subject to a federal tax lien, you will receive official notice from the IRS. This notice will come in the form of a document titled Notice of Federal Tax Lien and will contain several key pieces of information, such as:
- The type of tax debt you owe
- The years in which the debt in question was assessed
- The date when the balance was assessed
- The amount of the balance — not including penalties and interest — that will be assessed
- The last date on which the lien can be refiled
- For verification purposes, the last four digits of your Social Security number
When the IRS issues a tax lien, this document enters the public record and gives the federal government claim to your assets and future wages. The lien is attached to all your property — this includes any bank and investment accounts; any vehicles, real estate, or valuable items you own; and, if you own a business, accounts receivable.
If you sell any property that is under an IRS lien, the sale proceeds will automatically go to the government first. After your tax debt is settled, the government will forward the remaining funds to you. If the full debt isn’t covered by the sale of the property, the lien will remain on your other assets.
Although the law gives the IRS has the right to seize your property, this action is not taken unless you fail to take action in order to resolve your tax situation after you receive a Notice of Federal Tax Lien.
In most cases, a lien is not filed for tax debts under $10,000. If you are worried about being slapped with a lien but are not able to pay the full amount you owe, try paying your balance down to below $10,000, if possible.
What is the difference between a lien and a levy?
While a lien is a legal claim against your property to secure payment of your tax debt, a levy actually takes the property to satisfy the tax debt; a levy is a legal seizure of your property to satisfy a tax debt.
While liens and levies are two different things, federal tax liens lead can lead to levies. It is important to note that in order to impose a levy, the IRS does not need an external warrant, as they are a self-sustaining governmental organization.
Can I postpone a tax lien?
If you take steps to resolve your tax debt, such as submitting an offer in compromise to settle your account for less than you owe, appealing an IRS decision, or enrolling in an installment agreement, the expiration date on your debt is extended. If this occurs, the IRS can refile your lien within 30 days of the original expiration date and it will last until the new expiration date.
How Long Does a Tax Lien Last?
Federal Tax Liens
Federal tax liens are administered by the IRS. IRS tax liens self-release after their statute of limitations expires; this happens automatically after ten years. This provision is contained directly in the language of the lien:
“For each assessment listed below, unless the lien is refiled by the date given in column (e), this notice shall, on the day following such date, operate as a certificate of release as defined in IRC 6325(a).”
So, all you have to do is wait ten years for the federal tax lien statute of limitations to expire and you’re in the clear, right? Well, not exactly; there’s a reason so few taxpayers opt to wait out the statute of limitations. If you purchase any property or earn any money through income during that 10-year period, the IRS can — and will — seize it to pay off the outstanding tax debt. An active tax lien can destroy your credit, making it an immense challenge to get a mortgage or any other type of loan.
State Tax Lien
As the name suggests, state tax liens are assessed at the state level. Each state has its own rules and procedures regarding lien removal. Many states will offer fewer resolutions for than the IRS. In order to know exactly what options you have when placed under a state tax lien, it is highly recommended that you consult with a tax professional.
How to Remove a Tax Lien
File an Appeal
When it comes to the collections process, the law gives taxpayers many rights and protections. One such protection is the entitlement to notices from the IRS and the right to sufficient time to resolve tax problems. Another such right taxpayers have is the right to appeal collection actions by the IRS.
When you first receive a notice of a lien from the IRS, start by giving them a call. While this won’t always be a success, it has the potential to end your headache quickly and easily — if it is successful.
If your initial phone call with the IRS is not successful, you can request an official appeal by filing Form 9423.
The appeals process doesn’t always work, but it is always worth a shot. And if you have a compelling case — and if removing the lien can demonstrably improve the IRS’ chances of receiving the outstanding amount — then appealing the lien may be the quickest and easiest way to get it removed.
Pay Your Back Taxes
The first and most straightforward way to pay you back taxes is to pay in full. If paying in full is within the realm of financial possibility, it is strongly recommended as it accrues neither interest nor penalties.
If you can’t afford to pay in full, you may qualify for a payment plan with the Internal Revenue Service. Simply put, a payment plan is an agreement with the IRS to pay the taxes you owe within an extended but defined timeframe. There are two kinds of payment plans: short-term and long-term.
A short-term payment plan, or Full Payment Agreement, is a 120-day extension to pay in full. There are no additional fees for a full payment Agreement, but interest and applicable penalties still accrue until your liability is paid. However, if you are experiencing financial hardship, full payment agreements can still put a strain on your bank account — and your peace of mind.
If a Full Payment Agreement is not financially attainable, you may be eligible for a Long-Term Payment Plan, which entails an Installment Agreement. An Installment Agreement allows you to pay your taxes over an extended period of time while avoiding collection actions from the IRS such as liens, garnishments, and levies.
When utilizing an Installment Agreement to pay your taxes, you will still owe interest and late penalties. However, Installation Agreements allow you to break up the amount you owe into much more affordable chunks.
Additionally, there are a few options for reducing the impact of a lien that the IRS will agree to if it is in the best interest of both the government and the taxpayer:
Discharge of property
A Discharge of Property removes the lien from specific property, such as a home. This allows the taxpayer to, for example, refinance their mortgage to help pay back their tax debt.
While Subordination does not remove the lien, it allows other creditors to move ahead of the IRS. This allows the taxpayer to have an easier time getting a loan or mortgage.
A withdrawal removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for your property. However, you are still liable for the amount due.
As part of the IRS’ revamped Fresh Start initiative, are two options that withdraw your Notice of Federal Tax Lien after the lien’s release. In order to be eligible:
Your tax liability has been satisfied and your lien has been released; and also:
- You are in compliance for the past three years in filing for all individual returns, business returns, and information returns
- You are current on your estimated tax payments and federal tax deposits, as applicable
The other option may allow withdrawal of your Notice of Federal Tax Lien if you have entered in or converted your regular installment agreement to a Direct Debit installment agreement. In order to be eligible:
- You are a qualifying taxpayer (individuals, businesses with income tax liability only, and out-of-business entity with any type of tax debt)
- You owe $25,000 or less (If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting withdrawal of the Notice of Federal Tax Lien)
- Your Direct Debit Installment Agreement must fully pay the amount you owe within 60 months or before the Collection Statute expires — whichever comes first
- You are in full compliance with other filing and payment requirements
- You have made three consecutive direct debit payments
- You have not defaulted on your current — or any previous — Direct Debit Installment agreement.
IRS Tax Relief Programs
The IRS is a fair creditor and has provided several routes that taxpayers can utilize to assist with paying back taxes.
The IRS recognizes that each and every tax situation is different. In order to cast a wide net, the IRS has put several additional tax relief programs into place to assist taxpayers with paying their dues.
IRS Fresh Start Program
If you are struggling to pay your taxes, the IRS Fresh Start program for individual taxpayers and small businesses might be able to provide the help you need. Since 2011, the Fresh Start Program has helped thousands of taxpayers pay their outstanding amounts. Now, in order to help a greater number of taxpayers, the IRS has expanded the program by adopting more flexible terms for Offer-in-Compromise (OIC) agreements. This expansion will allow some of the most financially distressed taxpayers to clear up their tax problems much more quickly than before.
Here are a few of the changes:
Higher Tax Lien Thresholds.
Generally, the IRS will not issue a tax lien on a taxpayer’s home or other assets unless the total debt owed is $25,000 or more. Before the change, the threshold was set at $5,000 or more. Since the change, taxpayers may request the IRS to remove the lien from their property if the amount of tax due is $25,000 or less and they have a Direct Debit Installment Agreement (DDIA) in place. To request the withdrawal, the taxpayer must also agree to pay the entire amount due within sixty months or before the Collection Statute expires, whichever is earlier. Once a taxpayer meets all the requirements of a direct debit payment plan, the taxpayer may complete and submit to the IRS Form 12277, Application for Withdrawal Notice of Federal Tax Lien.
Tax Penalty Relief.
The IRS Fresh Start program opened the door to more relief from tax penalties. IRS penalties can sometimes be staggering and can make some tax debt seem impossible to pay. Having more opportunities for taxpayers to reduce or eliminate the penalties accrued on tax due may save taxpayers hundreds — if not thousands — of dollars.
Expansion of the IRS’s Offer in Compromise Program.
Generally, the IRS will accept an OIC when the amount offered represents the most the IRS can reasonably expect to collect within the Collection Expiration date. With the Fresh Start program, the IRS streamlined the complicated process of submitting an offer, making it easier for taxpayers to qualify.
Why is the IRS making this change?
The IRS recognizes that many taxpayers are still struggling to pay their bills. To help ease the process, they have put in place common-sense improvements to the OIC program that more closely reflect real-world situations.
This expansion focuses on the financial analysis used to determine which taxpayers qualify for an OIC. These changes can also enable some to resolve their tax problems in as little as two years— in the past, the process could take as long as four to five years.
In certain circumstances, the changes include:
- Revising the calculation for the taxpayer’s future income.
- Allowing taxpayers to repay their student loans.
- Allowing taxpayers to pay state and local delinquent taxes.
- Expanding the Allowable Living Expense allowance category and amount.
Other changes to the program include narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential. In addition, equity in income-producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.
When the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months — this is down from four years. For offers paid in six to 24 months, they will look at two years, down from five years. It is important to note that all offers must be fully paid within 24 months of the date the offer is accepted.
Information about the OIC program, including applicant qualifications, how to apply, and steps to complete the application process, Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise, is available on IRS.gov.
What is an Offer in Compromise?
An Offer in Compromise, or OIC, is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. When entering an OIC, there are three options: a Lump Sum Payment, a Short-Term Periodic Payment, and a Deferred Periodic Payment. With a Lump Sum Payment, the agreed-upon amount of debt must be paid in five or fewer installments. With a Short-Term Periodic Payment, the agreed-upon debt must be paid within 24 months. And with a Deferred Periodic Payment, the agreed-upon debt must be paid within the 10-year statutory period in which the IRS can collect the debt.
Generally, the IRS does not accept an OIC if they believe the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. OICs are subject to acceptance based on legal requirements.
If you are interested in obtaining an OIC with the IRS, take a look at the Offer in Compromise Pre-Qualifier. Then, you will need to use a Form 656 Booklet and Form 433-A. There is a non-refundable application fee of $205 unless you qualify as a low-income taxpayer as defined earlier.
Unfortunately, taxpayers undergoing open bankruptcy proceedings cannot enter an OIC. Additionally, if you are currently in an OIC, not filing a tax return can jeopardize the process — and the penalties for not filing a return are higher than those for not paying your taxes.
If applying for an Offer in Compromise agreement seems overwhelming, it may be best to enroll the help of tax professionals.
Partial Payment Tax Agreement
If your tax debt is just not affordable for you, potentially qualify for a partial payment installment agreement. While it can be fairly difficult to qualify for one, there is no set tax debt.
The IRS may allow you to pay part of your debt if you show you can’t afford the minimum payment for a Guaranteed or Streamlined Installment Agreement Payment Plan. A Partial Payment Agreement allows you to take longer to repay, — and the IRS will evaluate your financial position every two years to see if you are better off. They will include your equity in assets in their calculations.
Unfortunately, the IRS will also file a federal tax lien to guarantee debt collection and protect their interests. It’s possible you will have to sell your property in order to pay off your tax debt
Tax Resolution Services for Debt Relief
If you’re already busy juggling all of your other personal and financial responsibilities. The last thing you want is making time to interpret complex IRS tax code and processes to resolve your tax problems. And if your situation is uniquely complicated, you could be up against a brutal battle with the IRS. However, not taking action can result in much graver consequences, such as aggressive interest, collections measures, and even criminal charges.
With more than 65,000 clients and over $600 million in tax debt resolved, the experts at Community Tax are here to help:
- Our team quickly identifies the best tax relief option for you, eliminating the need for hours of self-directed research and considering the pros and cons.
- We resolve your tax issues in a timely manner without making you stay on hold with federal and state tax bureaus.
- Together, we can expedite the process by helping you gather the documents you need to apply for the appropriate tax relief solution for your needs.
- Thanks to our experience negotiating with the IRS, we’re confident in our ability to secure the best possible outcome for your situation.
Whether you need tax relief advice while preparing your taxes or need support finding the best tax debt relief solution for your needs, our team is well-equipped to apply the best strategy for your situation. Get your free consultation today.
Having the IRS file a lien against you or your property can make a stressful situation turn downright miserable. But if you keep your head up and work with the IRS towards a common solution, your future tax situation will only get better.
While each and every tax situation is unique, many taxpayers go through the same processes and procedures. You are not alone in your fight to regain good standing with the IRS and the experts at Community Tax are here to help.