If you’ve been notified of an impending tax lien by the IRS, the last thing you want to do is ignore the problem. What does a tax lien mean for your future? What happens next will depend largely on your ability to act quickly.
What Is a Tax Lien?
A tax lien refers to the IRS’s right to take possession of property belonging to a person until an outstanding debt is discharged. You should know that there’s no shielding certain assets when you’re facing a lien – it attaches to all of your eligible assets by default. That means that everything from your car to your savings will be targeted. Of course, lien activity isn’t limited to the IRS. State, city, and county-level government bodies can all enforce liens. A lien protects a government entity’s legal right to money or property if you do not pay taxes that are owed. A lien can be used to collect state taxes, income taxes, and back taxes of any form. Here are the three steps that can activate a tax lien:
- The IRS assesses your tax liability
- The IRS sends you a bill explaining how much you owe in the form of a Notice and Demand for Payment
- You refuse or neglect to pay the full debt amount in time
What comes next? The IRS will move forward with filing a public document called the Notice of Federal Tax Lien. This document alerts creditors to the fact that the government has a legal right to your assets and property.
How Does a Tax Lien Affect You?
An unaddressed tax lien can make it hard to stay in control of your finances for the foreseeable future. There is some good news: tax liens no longer appear on credit reports. Still, that doesn’t mean you’re totally in the clear. The IRS has the option to file a public notice that will let creditors know that the government has a right to your property.
What does that mean for you? A tax lien could very easily sabotage your efforts to obtain loans or financing in the future. Things like purchasing a home or starting a small business could be off the table if there’s a lien in your history.
You can still encounter financial headaches from a lien even if you already have a home. In fact, a lien could make it difficult or impossible to refinance or sell a home – there’s a good chance that a tax lien will pop up during a title search for a property.
The scariest consequence of all when it comes to a tax lien is that the lien could escalate into a tax levy. A tax levy allows the government to begin the seizure process. Your home, car, bank accounts, property, and paychecks are all on the table once a levy has been initiated. Of course, all of the negative consequences of a tax lien can potentially be avoided if you work quickly with a tax professional to mitigate the situation.
Tax liens can be applied to both individuals and businesses – in the latter scenario, a tax lien attaches to all property that belongs to a business. Even accounts receivable will be subject to a lien! Fortunately, tax lien help is available for both individuals and businesses.
What Are Your Options When You Have a Tax Lien?
You should never just close your eyes and ignore a tax lien! Acting quickly is often the only thing that stands between you and a full seizure of your property and assets. Even filing for bankruptcy won’t necessarily stop a lien – a federal tax lien can continue even after bankruptcy. Of course, you do have options for taking care of a tax lien in a way that satisfies the government. The big thing to keep in mind is that showing a willingness to work at paying what you owe will often be enough to keep the IRS from enforcing severe penalties.
You have to be willing to follow the IRS’s rules when developing a strategy for clearing up the problem if you want to walk away with the best possible outcome. Here’s a rundown of some of the popular options that are on the table when fighting tax liens:
- Payment in full
- Offer in Compromise (OIC) may allow you to settle your tax debt for less than you owe
- An Installment Agreement may allow you to settle your debt using a fixed payment plan
- A 60-day or 120-day payment extension could be granted if you simply need more time to come up with the funds to pay off your tax debt
- Currently Non-Collectible Status (CNC) could apply if you cannot reasonably pay off your tax debt while taking care of living expenses
- Personal loans can sometimes be used to pay debt and interest
You may also want to explore the possibility of filing an appeal if you disagree with the IRS’s assessment of your tax obligation. The IRS Office of Appeals oversees cases where taxpayers feel that liens have been applied erroneously. This is a situation where knowing exactly how the IRS operates its appeals process can work to your advantage, and the Tax Group Center will move forward with an eye on options for penalty abatement that can save you money and prevent harsh consequences.
There is really no one-size-fits-all answer, as every option for clearing up a tax lien comes with its own list of pros and cons. You could still be on the hook for interest and fees in some cases. However, there’s also a chance that you could have penalties waived if you handle the situation correctly. Your outcome is going to depend on your willingness to act quickly, your understanding of how the IRS works, your financial standing, and your ability to negotiate. The big thing to remember is that you will be doing yourself a big favor if you get the ball rolling on a solution before your manageable tax lien turns into a very problematic tax levy.
How Should You Address a Tax Lien?
Don’t wait until the government is coming after your home, draining your bank account, or siphoning money from your paycheck to take action. The team at the Tax Group Center is here to help you explore options for taking care of your tax lien as quickly and easily as possible. We’ll work with you to create a custom plan of action based on the specifics of your situation. Our team is here to help you clear your tax debt without facing big penalties or interest charges. The Tax Group Center has been helping taxpayers clear up issues with the IRS for 30 years. We’re an industry-leading company because we use the expertise of lawyers, CPAs, and licensed tax professionals to handle tax issues from all angles. Reach out today if you need help with a tax lien!