Can the IRS take your property?
An IRS lien is one of the most stressful events that can happen to a taxpayer. Uncertainty regarding just how far the IRS’s claims on your property can go is the biggest source of stress. An unaddressed lien can lead to a levy, when the IRS seizes your property to pay the tax debt. If you have an IRS lien, you need to understand the different types and their scope. Let’s take a look at the basics of IRS liens.
What Can the IRS Put a Lien On?
Federal tax liens can attach to all property and property rights possessed by a taxpayer. Yes, the IRS’s scope for property extends to both tangible property and rights to property. What’s more, the IRS’s definition of property also includes the following:
- Future interests
- Contingent interests
- Executory contracts
Once a lien exists, it automatically attaches to any properties acquired by the taxpayer throughout the entire duration of the lien. That means a property you purchase or inherit after the IRS has placed a lien on your account will be subject to that lien.
What’s more, property that you’ve owned for decades is also subject to the lien.
Now, let’s take a look at what’s behind some of the specific property claims used by the IRS.
When the IRS applies a lien on future interests, it’s stating that a postponed “right to property” does not negate the lien. For instance, a taxpayer may have a right to property under a trust or contract that distributes periodic distributions. The IRS will attach the lien to a taxpayer’s entire share of the rights, regardless of what the distribution schedule looks like.
Even potential property rights are not overlooked by the IRS. When the IRS puts a lien on contingent interests, it means that they are putting a claim on property or property rights that will be received by the taxpayer if certain events or circumstances come into play. This most frequently applies for a living trust.
A lien on executory contracts can apply before performance under a contract. That means that contract rights under a partially executed contract are considered a “full right” to a property because of the realizable value attached. As a result, the IRS considers this part of a lien.
What About Joint Property?
Yes, the IRS can attach liens to joint and shared property. However, the IRS can only attach a lien to the portion of property that is owned by the taxpayer with the tax debt. While the other party technically isn’t subject to the lien, they are greatly hindered regarding what they can do with the property as a result of the lien. The most common problem is that a lien acts as a barrier to selling a piece of real estate.
Even borrowing against the value of the property can be impossible. When homeowners borrow against their homes, they essentially go through a closing process. Liens that show up when a bank or lender goes through the approval process will stop a borrowing application in its tracks. While the IRS won’t necessarily seize a piece of property that has a lien, the lien essentially reduces or nullifies the value of the property as an investment.
Types of Property to Which a Lien Can Attach
Liens can be placed on any property that you own. This includes cars, assets, personal possessions, and more. Liens can also attach to business properties. Even a company’s incoming payments through accounts payable are subject to IRS liens.
Can You Get Rid of a Lien on Future Property?
An IRS lien applies to both current and future property. Even if you purchased property after the IRS placed the lien, that new property can still be affected by the lien. The easiest way to get rid of a lien on all of your property is to pay your IRS debt in full. If you’re unable to pay the full amount, you should be able to apply for IRS tax lien relief or withdrawal if you meet certain qualifications under the expanded IRS Fresh Start program.
Above all, the IRS just wants you to be compliant with trying to make payments. The first step to getting any type of lien forgiveness is to be current with all past tax returns. It’s important to get caught up on all unfiled tax returns, even if you can’t pay what you owe; the IRS won’t approve you for relief options if you’re missing any returns.
What Should I Do If I’m Worried About IRS Tax Liens?
If you’re concerned that the IRS is going to place a lien on your property, you should take action right away. If the lien is coming because of an unpaid tax bill, you can apply for IRS forgiveness options like an Installment Agreement (IA), Offer in Compromise (OIC), or Currently Non-Collectible (CNC) status now to avoid the lien being put in motion. Again, qualifying for one of these options is often as simple as just being current with all of your previous tax returns.
What can the IRS put a lien on? If you’re still worried, it’s time to talk to an expert. An unaddressed lien can follow a person around for decades. What’s more, it can also negatively impact a taxpayer’s spouse and family members because shared property is subject to liens. At Tax Group Center, our experts have been working with the IRS to resolve liens and tax debts on behalf of our clients for three decades. Contact us today if you need help removing an IRS lien.
IRS Lien on Property
If you don’t pay your tax debt, the government can make a legal claim, or lien, against your personal or business property. This lien applies to all physical property and financial assets you own. Yes, that means that the government can come after your real estate, personal property, financial assets, and earnings. Liens will apply even if you’ve paid some of your debt.
Prior to instating a lien, the IRS will notify you that you’ve failed to pay your full tax bill. You will receive something called a Notice and Demand for Payment in the mail. If you ignore this document, the IRS will then file a Notice of Federal Tax Lien. The purpose of this document is to let creditors know that the government is making a legal claim to your property.
How To Get Rid of a Lien
If possible, focus on avoiding a tax lien instead of getting rid of one. Try to file and pay all your taxes on time. If you do fall behind, don’t ignore the IRS’s requests for payments. You have a window after you’ve failed to file or pay taxes where you can apply for debt relief options that include an Installment Agreement (IA), Offer in Compromise (OIC), and Currently Non-Collectible (CNC). These options can help you to avoid fees, penalties, and liens from the IRS.
Paying your full tax debt is the best option for getting rid of a lien after it’s in place. Once your debt is paid, the IRS will release your lien within 30 days of payment. You also have several other avenues to pursue if you’re unable to pay your bill. Here’s a look:
- Discharge of Property: You may be able to file for a “discharge” that removes the lien from a specific property that you own. The IRS has very strict rules for eligibility for this option.
- Subordination: While this option doesn’t remove your lien, it does provide relief by allowing creditors to go before the IRS. This can be important if you need to apply for a mortgage or loan. Again, the IRS has strict eligibility rules.
- Withdrawal: This option removes the IRS’s public Notice of Federal Tax Lien without removing your liability.
In some cases, you may decide that using the equity in your home to satisfy your tax debt is the best option. You can request for the IRS to discharge the lien for an IRS tax lien sale of property. Only by getting approval from the IRS can you transfer the property to the new owner without the lien. Keep in mind that the IRS will closely monitor and document this transaction.
The IRS introduced robust options for IRS lien withdrawal as part of its 2011 Fresh Start program. These options can put you on the fast track to getting your record cleared, even if you aren’t able to pay your tax debt in full. Here’s a look at some of the qualifying factors for IRS lien withdrawal beyond paying your debt in full:
- You’re in compliance for the three consecutive years for filing all individual, business, and information returns.
- You’ve made three consecutive direct debit payments.
- You’re current on all applicable estimated tax payments and deposits.
- You owe $25,000 or less in taxes. If you owe more than $25,000 in taxes, you’re able to request a withdrawal once you’ve paid down your balance to $25,000.
- You’re fully compliant with other IRS filing and payment requirements.
- You haven’t defaulted on any payments in a Direct Debit Installment agreement.
One of the biggest mistakes a taxpayer can make is to avoid speaking with the IRS out of fear. Explore all your options if you can’t pay your tax bill in full. While a lien is never ideal, the lien forgiveness options above can help you to avoid serious damage to your financial records.
How To Know if There Is a Lien on Your Property
Fixing a federal tax lien on property begins with confirming a tax lien. The IRS will send you a Notice of Federal Tax Lien when it places a lien on your property. If you suspect that you’ve overlooked or misplaced a lien notice that arrived, you can inquire about a potential lien by contacting the IRS’s Centralized Lien Unit at 1-800-913-6050.
If you prefer not to contact the IRS on your own, it’s recommended that you authorize a tax professional to call the IRS on your behalf.
What Happens if You Don’t Get a Property Lien Removed?
You may be unable to sell your home if there is an IRS lien on the property, as the title search that’s conducted prior to closing will pull up any federal tax lien.
IRS tax liens impact all aspects of your personal, business, and financial life. First, all of your current and future assets are up for grabs for the duration of the lien. This includes property, vehicles, and securities. Even more devastating is the fact that an IRS lien can severely limit your ability to obtain credit in the future. This means that you may not be able to borrow money for a home mortgage or business loan.
Liens can also attach to business properties. This gives the IRS rights to all business property. Even your accounts receivable could be claimed by the IRS for as long as the tax debt remains outstanding. An IRS tax lien won’t go away if you file for bankruptcy; they will continue to pursue your lien even afterward.
Get Help for a Property Lien Release With a Professional
A lien on property is one of the most complex and financially devastating consequences of running afoul of the IRS. In many cases, taxpayers don’t realize that they have options for softening the repercussions of a tax lien even if they can’t pay off the lien in full. At Tax Group Center, we help clients get untangled from IRS liens every day. Reach out to our experienced team if you have a federal tax lien on your property to receive guidance backed by 30 years of working with the IRS. Contact us today!