What To Do About a Tax Lien on Property
Can the IRS take your property?
It’s what you’re probably wondering if you’re facing a federal tax lien on property. The critical thing to know is that a lien doesn’t happen without warning, as the IRS provides plenty of notice prior to instating a lien.
Take a look at what you need to know about tax liens. You may be able to stop, prevent, or correct a lien if you act quickly.
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!