Federal Tax Liens are a problem faced by many taxpayers that owe the IRS for years of 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 some crucial steps may be missed that can lead to a Federal Tax Lien. This legal action taken by the federal government to collect on late payments negatively impacts several aspects of a taxpayer’s life.
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 property you own. This is a similar 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 placed 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.
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The purpose of the lien is to ensure that the IRS has the ability 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 apply to your tax debt, and will go straight to the IRS. You are then entitled to whatever remains, given you have paid off your entire debt with what you sell. A very common problem for our clients exists 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 most 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 the best course for a tax debtor to take.
Federal tax liens lead can lead to levies, 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.
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 and can affect your ability to get a job or find housing. The second harmful effect is in buying and selling property—especially real estate. It is very difficult to obtain a loan if you have tax liens because once the property is purchased it becomes subject to the lien and this makes lenders nervous. It 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 clear title. If you are thinking of buying or selling real property in the near future you must 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 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 a tax lien. The tax professionals at Community Tax LLC are experts in working with clients and the IRS to find the optimal solution for you.
The best way to remove a 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 a tax lien may be addressed.
Discharge of Property
A discharge of property entails that you liquidize, 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 a bankruptcy, there are some types of property that may qualify to be discharged for debt, 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 this option 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. 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, and or 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.
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 the tax debt fully. The IRS may agree to subordinate the tax lien to a lender’s security interest in order to help you refinance where the IRS sees it fit 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.
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 than 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 tax 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.
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 paper work 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.
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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 you owe $50,000 or less in combined individual income tax, penalties, and interest, in addition to have filed all required returns. As a business you must owe no more than $25,000 or less 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 to have your owed taxes, and therefore 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, then the IRS has the authority to have you pay less of your debt than the total tax debt you owe. As you may imagine, however, obtaining this negotiation 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 on 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 doing so would create a serious economic hardship that will cause squalor for you and any dependents. This last reason is only used for extraneous circumstances. 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 willing to work with you, so long as you take action. By contacting our high-quality tax 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. We can even represent you so you do not have to worry.
In most cases, a person’s home 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.