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IRS Tax Lien Help: What is a Tax Lien and How to Get Tax Lien Help

IRS Tax Lien Help
August 04 2023 •
Tax Liens & Levies

Federal Tax Liens are a problem faced by many taxpayers that owe money to the IRS for years, having missed filing or paying income taxes. Meeting deadlines for income tax payments and tax return submissions is a responsibility held by almost every U.S. citizen. While many individuals attempt to handle their taxes on their own, this can be complicated, and often taxpayers may miss critical steps sometimes leading to a Federal Tax Lien. This legal action taken by the federal government has the potential to affect many parts of your financial life.

Key Takeaways

Short on time? Check out the key takeaways on tax lien help here.

  • A lien is a legal right to possess your assets due to unpaid debt; the IRS can place a lien on your property if you have unpaid back taxes.

  • Tax liens can lead to the legal seizure (or levy) of assets like your home, property, savings, or investment accounts.

  • The best way to avoid a lien or levy is to pay your bills on time. If that isn’t possible, you have the option to negotiate an installment agreement, offer in compromise, property discharge, or other means of paying down your balance.

  • Tax liens can harm your personal finances by both taking your assets and damaging your personal credit, leading to higher interest rates and difficulty borrowing.

  • Community tax representatives are happy to work with you to resolve any IRS liens placed on your property.

In this guide to tax lien help, we will walk you through everything you need to know. You can read from start to finish for a thorough explanation of IRS tax liens and what to do about them. Or, if you know what you’re looking for, use the list of links below to navigate directly to the section of your choice.

What is a Tax Lien?

A tax lien is a form of a passive collection action that the IRS can impose upon a taxpayer.  It is a public document that alerts other creditors that back taxes are owed to the IRS, and that the government has a legal right to possess the property you own. This is similar to the action all creditors can take with the purpose of securing interest in the money that is owed.  When a federal tax lien is filed by the IRS, it attaches itself to your assets. Your assets include your home, your car, other property, bank accounts, and investment accounts.

A tax lien is essentially a legal claim made by a government entity against a truant or noncompliant taxpayer’s personal assets. The bill explains how much you owe. This means that a tax lien almost never comes out of thin air. Tax liens tend to be a last resort, and are only enforced after the government agency has repeatedly notified the taxpayer of an outstanding tax balance that has been ignored or is otherwise unpaid. Tax liens are more common than you think, in fact, Americans collectively owed $131 billion in back taxes for the 2018 tax year. A percentage of those taxpayers may have faced a lien, if they did not pay in time.

The purpose of the lien is to ensure that the IRS has the ability to receive owed money in the event that you attempt to sell any property.  When a tax lien is enforced, profits from any property you sell will first be applied to your tax debt, and will go straight to the IRS.  You are then entitled to whatever remains, given that you have paid off your entire debt with what you sell. This is a very common problem for our clients when they own a home and want to sell that home, or they want to procure a home equity loan. If you have a tax lien that shows up on your credit report, it could also prevent you from getting a mortgage if you are attempting to purchase a home.

While there are several ways to remove the lien, the ideal situation is to never receive one to begin with. When a tax lien is filed by the IRS, creditors will be alerted that the government has links to your property. For taxpayers, this can become a hindrance to the future of accessing a mortgage for a home or loans for other expenses. If a taxpayer communicates with the IRS to negotiate payment and follows through with that payment, then the lien will likely not be enforced.

What are the Implications of a Tax Lien?

A federal tax lien is one collection method used by the IRS. This tactic puts a legal hold on a taxpayer’s assets to keep them in place for the government to seize them if the balance is not settled in a timely fashion. Federal tax liens are issued through a notice sent to the individual following the initial notices of missed payments or filing deadlines. This action causes unwanted stress and damages credit ratings and scores for years to come. For this reason, hiring a tax professional to handle a federal tax lien is often the best course for a tax debtor to take.

IRS tax liens can lead to levies or forced seizure of your property, used by the IRS to collect money and personal assets. This action does not require a warrant, as the IRS is a branch of the government. Avoiding federal tax liens and subsequent tax collection activities is manageable with the right help. It is very important to find a trustworthy tax debt expert to aid in resolving any legal tax problems.

If you do have an IRS lien in effect, these are some of the harmful effects you may be able to expect:

  1. The first harmful effect a tax lien has is on your credit score. A tax lien usually subtracts about 100 points from your credit score, and a lower credit score means paying higher interest rates on loans and can affect your ability to get a job or find housing.
  2. The second harmful effect is in buying and property, especially real estate. It is often very difficult to obtain a loan if you have IRS tax liens because, once the property is purchased, it becomes subject to the lien, and this makes lenders nervous.
  3. Third,  is also difficult to sell property subject to the lien because the lien travels with the property, and the lien must be paid in full before the buyer can have a clear title. If you are thinking of buying or selling property in the near future it’s wise to avoid liens at all costs.

The good news is that with the right resolution in place you can avoid tax liens before they are filed, so be sure to make arrangements to reach an agreement with the IRS before it’s too late!

How Do I Get Help With a Tax Lien?

There are many paths to take when addressing an IRS lien. The tax professionals at Community Tax LLC are experts in working with clients and the IRS to find the optimal solution for you.

Pay your tax bill

The best way to remove an IRS tax lien is to fulfill your obligation to the IRS and fully pay off all of your tax debt upfront, including interest. Doing so will ensure that your lien is removed within 30 days of fulfilling your obligation.  We understand that paying in full upfront is not always a practical or realistic solution for our clients. At Community Tax, we know that every client’s financial situation is unique.

Our first priority is to work with our clients to figure out why they need a federal tax lien removed and why it needs to be addressed. Our professionals have experience in analyzing an individual’s finances, assets, and tax debt to find the best solution. Once we have an understanding of a client’s specific situation, we determine whether a lien removal based on discharge of property is possible, whether we can apply for a lien subordination or withdrawal, whether our client needs to establish a direct debit installment agreement, or whether a client qualifies for an offer in compromise. Below is a description of the many ways an IRS tax lien may be addressed.

Discharge of Property

A discharge of property entails that you liquidate, or sell off, all necessary assets in order to pay tax debt. This may be included in a Chapter 7 bankruptcy. By liquidating assets, you may complete or come close to resolving your tax debt. It is important to note that for bankruptcy to clear debt, there are some types of property that may qualify to be discharged, while some property is protected from liquidation.

It is essential that you contact a professional when considering a Chapter 7 discharge. This is because the discharge is often subject to many exceptions, which could jeopardize your ability to have your discharge approved. At Community Tax, our tax lawyers, enrolled agents, and CPAs have extensive knowledge and first-hand experience with the subject of tax law and financial regulations. It’s important to know that you may be denied for several reasons. These include: 

  • Failure to produce adequate financial records
  • Insufficient explanation of loss of properties
  • Committing a bankruptcy crime
  • Committing fraud by concealing or destroying assets
  • Not taking the appropriate instructional course regarding financial management

Often, this is a case that is best handled by a professional. Our tax and legal professionals will help organize and analyze your financial information to see if this is a viable option for you.

Lien Subordination

Sometimes, a tax lien is best resolved by obtaining a lien subordination or withdrawal. Taxpayers choose this option when they want to refinance their home in order to pay debt, but are still not able to pay off their tax debt fully.  The IRS may agree to subordinate the IRS lien to a lender’s security interest in order to help you refinance where the IRS sees it in the best interest of the government. It is important to note that the lien will still remain in place and will continue to influence the property and other property. In this case, the IRS may find that refinancing your property may be the most beneficial to them because they receive funds. If you refinance, the IRS recognizes that you may have a lower interest rate to pay, which means you can pay off more of your tax debt in installment agreements.

When will a lien withdrawal be issued?

A lien withdrawal will be issued under certain circumstances.  It should be noted that a Withdrawal of the Notice of Federal Tax Lien is different from the Certificate of Release of Federal Tax Lien. A lien withdrawal only has the authority to remove the effects of a Notice of Federal Tax Lien, while the latter releases the paper document as well as the statutory tax lien. You may be eligible to have your IRS lien withdrawn if the filing of the notice was not in accordance with the IRS administrative procedures. You may also have it withdrawn if you agree to pay in installments, if you pay in full, or if you do not feasibly have the means to pay without going through serious financial hardship.

Qualifying for Lien Subordination or Withdrawal

In order to qualify for a lien subordination or withdrawal, you must provide the appropriate information. The IRS must see information regarding the value of your current property, the existing debt you owe, and the new lender and loan attached. In detail, the IRS must see a copy of the tax lien you received, complete legal documentation describing the property, two current appraisals of the property, complete documentation regarding your lender, and finally the closing date and location for the sale of the property.

Some taxpayers find that when they are applying for a lien subordination that they struggle to sift through all of the paperwork efficiently and effectively in order to most likely obtain a lien subordination. Do not hesitate to reach out to the professionals at Community Tax in order to ensure that this plan is best for you.

Direct Debit Installment Agreement

Under certain circumstances, you may qualify for a direct debit installment agreement. An installment agreement essentially allows you to pay off your debt in monthly payments, until the tax debt is paid off in full. You may be eligible to apply for an online payment agreement if you owe $50,000 or less in combined individual income tax, penalties, and interest, in addition to having filed all required returns. As a business you must owe no more than $25,000 in payroll taxes and have filed all required returns. If you meet these requirements, the IRS may allow you to make installment agreements.

Keep in mind that the IRS wants you to pay your balance, so they are willing to work with you to get it. However, when the IRS accepts your applications, you agree to certain terms. These include that you pay at least the minimum monthly payment on time every month, and file all required tax returns in the past and in the future on time.

Another attractive feature of an installment agreement is that it does not require that you provide a financial statement or financial verification. However, the IRS does have the ability to take authority over how much your minimum monthly payment will be. Consult our tax experts at Community Tax, and we will gather your information and find whether this path is the right solution for you.

Offer in Compromise

The offer in compromise is an appropriate action for those who have an inability to pay all of their tax debt in a reasonable amount of time. The IRS has the authority to allow you to pay less of your debt than the total tax debt you owe. As you may imagine, however, negotiating an offer in compromise is generally difficult. An offer in compromise is an agreement between the IRS and the taxpayer that the taxpayer will pay less, including all debt and interest, than the full amount. If the IRS decides, based on your financial information, that you are able to pay by other means, they may refuse an offer in compromise but accept an option such as a monthly installment agreement.

The IRS may accept your application of an offer in compromise if there is a doubt as to liability. In order for this to occur, there must be a viable means of serious legal dispute that the tax debt is actually correct. The IRS must also determine that there also must be no other reasonable means of collecting your taxes. Finally, the IRS may accept an offer in compromise if it is the best means of effective tax administration. This means that an offer to the IRS may be accepted if they are certain that not doing so would create a serious economic hardship for you and any dependents. In order to receive an offer in compromise, you must provide extensive financial information on all assets, including property.

Your Right to Appeal

Whether you have received your first notification from the IRS, or the last before they levy your assets, you always have time to appeal. The IRS is usually willing to work with you, so long as you take action. By contacting the experts at Community Tax, you have the ability to take your taxes into your hands. We will be with you every step of the way to keep your finances safe and secure. We have a team of highly educated, experienced, and well-qualified tax professionals who will give you what you need to secure a positive financial future. Our team consists of Certified Public Accountants, tax attorneys, and enrolled agents who are all granted unlimited rights to represent you before the IRS. Don’t ever feel like you have to go it alone, we have the ability to look at your individual financial needs and strategize a plan for you.

Avoiding a tax lien

Of course, the easiest way to keep from worrying about a tax lien is to simply not have one in the first place. Avoiding a tax lien can be as simple as paying your taxes. It’s important to be diligent about filing your taxes on or, preferably, before the April 15th deadlin, and be sure to file both your state and your federal taxes by this date.

If your tax bill is greater than you are able to pay at the moment, the IRS offers its payment plan program. As mentioned above, this allows you to make consistent monthly payments on your tax debt, easing the burden and keeping the IRS out of your hair. It’s less of a headache if you don’t wait until you have a lien placed on your assets to set up the agreement, so, if you find that you’re unable to pay come tax season, immediately contact the IRS to see if you can establish a tax payment plan.

If you already have substantial tax debt from previous years, but do not have a lien placed on your assets yet, the best thing you can do is begin to pay down your debt. Whether by payment plan, offer in compromise, or by using the IRS Fresh Start program, being proactive about your tax debt now will spare you the pain and frustration of a tax lien later on down the road.

Removing a tax lien

Once you’ve paid up your tax debt, the IRS will remove the lien on your assets. After all, your debt has been paid, whether through an installment plan, subordination, discharge of property, or offer in compromise. However, the lien placed on your tax debt may still have a lasting effect on your personal financial life, as tax liens can be damaging to your credit score.

Luckily, you don’t have to be doomed. IRS Form 12277, Application to Withdraw Federal Tax Lien from Credit Report, is available to those who have resolved their tax debts. Especially if you plan on purchasing a home, car, or other expensive asset in the near future, it’s critical that you have the lien removed from your credit report. Lending agencies will see the lien as a sign of poor creditworthiness, and may offer you a poor interest rate if the lien remains on your report.

Out professionals specialize in making tax resolution simple. Unlike many others in the industry, our team members are well-established, seasoned in debt resolution, truly care about our clients, and have a history of success.

Qualities of a Tax Professional

Don’t let a tax lien damage your financial wellbeing. In most cases, a person’s home or other property is their most valued asset. A federal tax lien places that asset in jeopardy, whether you realize it or not. Here at Community Tax, our tax professionals will fight to protect that asset in the event that the IRS has filed a tax lien. Get help today and call now.