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Tax Lien: What It Is And How You Can Stop One

tax lienIt’s an issue that no one really wants to deal with – a tax lien can be bad news when it arrives at your door. The notification is intimidating, and if you aren’t used to dealing with the IRS you can quickly get into a mess. In fact, receiving a Tax Lien can be a very stressful period in your life.This is where the right support from a specialist tax firm can really help you out. Dealing with a Federal Tax Lien doesn’t have to be complicated. In fact, it’s more important that you sort it out quickly so that your assets are protected. There is help and support available for dealing with this situation. Clean Slate Tax can work with you to understand your personal circumstances and offer the best course of action to get the problem sorted out.

What Is A Tax Lien?

When the IRS decides that you have unpaid federal taxes, it may bring out a Tax Lien against you. If you have not paid an outstanding amount of tax annually each April, you can expect this process to begin pretty swiftly. This is a document on public record stating that due to non-payment of tax owed, the government declares a legal right to your property to resolve the outstanding amount. This includes the amount that you are alleged to owe, as well as any additional costs, penalties and interests that have accrued. A tax lien means that:

  • The government has a legal claim to your property to resolve an outstanding debt
  • It can be enforced against an individual, or a business
  • Your property cannot automatically be seized – but the lien means that taxation authorities get first rights to your property over any other creditors you may have (including the bank if you owe a mortgage)
  • The tax lien will stay in place until such time as you have paid off the full amount owed plus any additional charges and interest, or the statute of limitations expires on the debt
  • If you meet the requirements of the IRS Fresh Start Initiative, you may be able to have the Lien removed

How Do I Prevent A Tax Lien?

The first course of action is to ensure that all taxes are up to date and filed on time. If you are aware of an upcoming tax bill that you know you won’t be able to pay, it’s a much better idea to speak to the IRS in advance. They will be able to work out a repayment plan with you. This will not only give you some financial breathing space, but it can prevent you having to live without some of the severe restrictions that a Tax Lien places on your life. The act of enrolling in a payment plan signals that you are making an effort to repay what you owe, and can help to stop a dreaded Tax Levy happening, where assets are seized and sold off. This process can be hugely distressing, so it’s far better to avoid it by any means. It’s wiser to avoid the risk by making sure that your tax affairs are in order, entrusting a reputable firm, and checking that you are having enough tax deducted from your paycheck each month to cover your expected tax bill. The IRS will usually catch up with people quite quickly and if this is the case, you are going to end up owing far more than just the initial amount. So it really is better to work with the IRS on a payment plan than to have things escalate to the level of receiving a Tax Lien.

How Does A Tax Lien Affect Me?

Receiving notification of a Tax Lien can be a stressful experience. But how does it actually affect your daily life and finances? To receive a Tax Lien is a very serious experience that will impact your life.

  • You may not be able to get credit. Although a Tax Lien no longer appears on your Credit Report like it used to, the IRS can still file a public notice which may creditors will search for when processing a new credit application
  • It applies not only to the assets that you already own – things like property, cars, stocks and shares – but also to any that you acquire while the lien is in effect
  • Your business property and accounts are also liable
  • If you’re going through a home sale or a remortgaging process this could be jeopardized. The details of your Tax Lien are likely to come up during the title searches, and any equity that you have in the property will have to be out towards paying off the debt in order to close the sale.
  • If you are in the process of filing for bankruptcy, be aware that this process does not automatically invalidate the effect of the lien. You may well still be responsible for your remaining tax debt even after being declared insolvent.
  • You may find that an outstanding tax lien also affects your ability to get a job as a lot of employers will not take on new staff with federal judgements
  • You may find that you no longer have security clearance to leave the country, so your travel plans are likely to be restricted.
  • Your time will be swallowed up, as dealing with an outstanding Tax Lien can be complicated on your own. Overdue taxpayers are often put into an automated collections process. This can mean hours on hold with call centers or even dealing with in-person visits from collections agencies who may have been assigned to your case.
  • If you are not able to resolve your Tax Lien quickly, the situation might escalate to a Tax Levy, which is something else you need to deal with and has a more serious impact.
  • If the situation is not resolved at all, it can lead to you facing criminal charges which will severely impact your life

How Do I Resolve An Outstanding Tax Lien?

Professional guidance from an experienced and appropriately qualified tax firm will be needed to guide you through the process. It’s very important to resolve your tax lien as quickly as possible, because interest and other charges continue to accrue while the case is ongoing, which means the final amount owed is getting higher all the time. So, how can you resolve the case quickly?

  • Immediate payment of all owed amounts including interest and additional charges
  • Filing an ‘Offer In Compromise’. This may allow you to settle your tax debt with the IRS for less than the total amount owed. It can be an option if you either cannot pay your full liability due to reduced circumstances, or if paying them would constitute a significant financial hardship
  • Arrangement of an Installment Agreement, which is a plan to pay back the owed amount over a period of time
  • Qualifying for the IRS Fresh Start Program if you meet the requirements
  • Discharging Property – If you can obtain a Certificate of Discharge you may be able sell property free of the lien
  • Subordination – This is an application which allows other creditors to move ahead of the IRS in the queue for repayment, such as when a mortgage or a loan is critical. It does not remove the lien.
  • Withdrawal – Removal of the public notice that assures the IRS is not competing with other creditors for the rights to your property

There are lots of options to consider, and it can be a little overwhelming. That’s why the expert guidance of a firm like Clean Slate Tax can really help you to resolve matters to your best advantage. Once your Tax Lien is paid off in full, the IRS will release it’s hold on your accounts and properties within 30 days.

What Is The Difference Between A Tax Lien And A Tax Levy?

A Federal Tax Lien places a hold on all of your financial assets, but is not a notification of seizure. If it is not resolved, however, the next step is a Tax Levy. This is when your property is taken to pay back the outstanding amount that you owe. Tax Levies are put into force in various ways. Your wages may be frozen, your assets seized and impounded, and your back accounts taken over. Naturally, you will want to avoid this scenario, which is why prompt resolution of your case is the best course of action.

What Is The Timeline On A Tax Lien?

Many people wonder what really happens when a Tax Lien is declared. The timeline of events is individual in each case, as it’s affected by your personal circumstances. However, there are some fixed points which will apply to your case.

  • Penalties and accrual of interest are dated to start immediately. This means that if you have not paid your tax bill in full by April 15th, the IRS will start to charge interest on whatever amount you owe from this point onwards.
  • The APR (Annual Percentage Rate) of interest paid on your debt is usually 5% or 6%
  • The IRS may also change a late payment fee. This is 0.5% of the outstanding amount per month, to a maximum of 25% of the total owed.
  • Within 3 months, you are likely to receive notification from the IRS that a balance for payment is due, although they can start as soon as one month after non-payment. You may receive a series of remind letters, getting more serious in tone each time.
  • Within 6 months, an official Tax Lien will be issued, although this could be much sooner. This claims your assets in a legal sense and ensures first payment if they are sold.
  • Your account may be passed on to a private debt collection agency. If this happens, the IRS will send you a notification with the collection agency’s contact details, or they may contact you themselves.
  • If you owe a significant amount, your case may be assigned to a Revenue Officer. This is an IRS official who goes out into the field and collects taxes on behalf of the authority. Usually, this step is only taken in extreme cases where tens of thousands of dollars or more are owed.
  • Within 3 to 6 months, if the case remains unresolved, the State Department may choose to revoke your passport to stop you travelling. The Tax Levy may be issued at this point, and you could find yourself having to deal with things like vehicles being seized and sold at auction.

Avoiding A Tax Lien – What You Need To Do

As much as we may sometimes resent paying them, taxes are an inevitable part of life, and if you do not pay them, the result is unavoidable tax debt. This is a stressful situation to deal with and can severely impact your quality of life. A lot of people unfortunately go through this process – the IRS estimates that 10 million people each year end up facing tax penalties. If you get into this situation, the best course of action is to resolve matters as fast as you can, and the support and guidance of a professional tax firm is really important to get it all resolved.

Take Action – Once you’ve processed your tax bill, you need to take action – even if you cannot afford to pay the amount owed. Ignoring the situation certainly won’t make it go away, but it will make it even more difficult by leading you to accrue interest, late payment penalties and other charges which raise the amount owed and leave you further away from it being sorted. The penalties for not filing taxes can lead to criminal charges.

File For An Extension – If you hope to be able to pay, but cannot immediately, you can choose to file for an extension. In that situation, you should still pay as much of your outstanding balance as possible before the April deadline – this helps you to avoid incurring additional charges. If you cannot hope to pay at all within a reasonable timeframe, arranging a payment plan with the IRS can spread the costs out a little bit and still help you avoid some of the negative consequences of non-payment.

How Do I Get A Tax Payment Plan?

If you need more than 120 days to pay back the amount you owe, and you owe less than $50,000 (including penalty charges and interest) you may be eligible for a payment plan to help you spread out the payments. These payment plans can sometimes add on penalties and interest anyway, but they give you the chance to pay things back gradually and avoid the stress of a Tax Levy. It can be a good option for those in certain circumstances

How Do I Get An Offer In Compromise?

An ‘Offer In Compromise’ refers to an arrangement made with the IRS to pay back some, but not all, of the outstanding amount. In order to qualify for this, you need to prove that you would incur significant hardship under the terms of a payment plan covering the full amount owed. If you have a genuinely unaffordable tax burden, this can help you access some tax relief. The IRS will consider factors such as:

  • Your income
  • Your ability to pay the total amount owed
  • Your asset equity
  • Your recurring expenses

You should explore all the other payment options available before requesting this step. Generally speaking, the IRS will approve an Offer In Compromise when the amount offered is the best they are likely to be able to collect from you within a reasonable period of time.

How Do I Get A Tax Lien Released?

Each state has its own rules about when a lien will be released, but you can expect it to happen within 30 days of a completed payment. Recently, the Fresh Start Program has made it a bit easier for taxpayers to get liens released:

  • If you enter into an approved Payment Plan to resolve the full balance, with automatic direct debit payments
  • If it can be proved that the IRS did not follow correct procedure when filing the lien
  • If the statute of limitations has expired then the lien will be released
  • If you successfully apply for the Fresh Start Program

Once this happens, you will receive a copy of the lien release notification for your records and may need to contact credit bureaus and provide them with a copy.

How Can I Find Help With My Tax Lien?

Tax debt matters can be hard to understand. The help of an experienced professional can be invaluable to guide you through the complexities of your personal tax situation. Our team is experienced at navigating the often hard to understand ways that the IRS and state tax authorities operate and giving you the best advice to resolve the situation. We will work closely with you to understand the specifics of your personal circumstances and recommend an option that will best serve you. Contact us to work out a plan to resolve your outstanding tax debt, get rid of your tax lien and become debt-free.

tax lienIt’s an issue that no one really wants to deal with – a tax lien can be bad news when it arrives at your door. The notification is intimidating, and if you aren’t used to dealing with the IRS you can quickly get into a mess. In fact, receiving a Tax Lien can be a very stressful period in your life.This is where the right support from a specialist tax firm can really help you out. Dealing with a Federal Tax Lien doesn’t have to be complicated. In fact, it’s more important that you sort it out quickly so that your assets are protected. There is help and support available for dealing with this situation. Clean Slate Tax can work with you to understand your personal circumstances and offer the best course of action to get the problem sorted out.

What Is A Tax Lien?

When the IRS decides that you have unpaid federal taxes, it may bring out a Tax Lien against you. If you have not paid an outstanding amount of tax annually each April, you can expect this process to begin pretty swiftly. This is a document on public record stating that due to non-payment of tax owed, the government declares a legal right to your property to resolve the outstanding amount. This includes the amount that you are alleged to owe, as well as any additional costs, penalties and interests that have accrued. A tax lien means that:

  • The government has a legal claim to your property to resolve an outstanding debt
  • It can be enforced against an individual, or a business
  • Your property cannot automatically be seized – but the lien means that taxation authorities get first rights to your property over any other creditors you may have (including the bank if you owe a mortgage)
  • The tax lien will stay in place until such time as you have paid off the full amount owed plus any additional charges and interest, or the statute of limitations expires on the debt
  • If you meet the requirements of the IRS Fresh Start Initiative, you may be able to have the Lien removed

How Do I Prevent A Tax Lien?

The first course of action is to ensure that all taxes are up to date and filed on time. If you are aware of an upcoming tax bill that you know you won’t be able to pay, it’s a much better idea to speak to the IRS in advance. They will be able to work out a repayment plan with you. This will not only give you some financial breathing space, but it can prevent you having to live without some of the severe restrictions that a Tax Lien places on your life. The act of enrolling in a payment plan signals that you are making an effort to repay what you owe, and can help to stop a dreaded Tax Levy happening, where assets are seized and sold off. This process can be hugely distressing, so it’s far better to avoid it by any means. It’s wiser to avoid the risk by making sure that your tax affairs are in order, entrusting a reputable firm, and checking that you are having enough tax deducted from your paycheck each month to cover your expected tax bill. The IRS will usually catch up with people quite quickly and if this is the case, you are going to end up owing far more than just the initial amount. So it really is better to work with the IRS on a payment plan than to have things escalate to the level of receiving a Tax Lien.

How Does A Tax Lien Affect Me?

Receiving notification of a Tax Lien can be a stressful experience. But how does it actually affect your daily life and finances? To receive a Tax Lien is a very serious experience that will impact your life.

  • You may not be able to get credit. Although a Tax Lien no longer appears on your Credit Report like it used to, the IRS can still file a public notice which may creditors will search for when processing a new credit application
  • It applies not only to the assets that you already own – things like property, cars, stocks and shares – but also to any that you acquire while the lien is in effect
  • Your business property and accounts are also liable
  • If you’re going through a home sale or a remortgaging process this could be jeopardized. The details of your Tax Lien are likely to come up during the title searches, and any equity that you have in the property will have to be out towards paying off the debt in order to close the sale.
  • If you are in the process of filing for bankruptcy, be aware that this process does not automatically invalidate the effect of the lien. You may well still be responsible for your remaining tax debt even after being declared insolvent.
  • You may find that an outstanding tax lien also affects your ability to get a job as a lot of employers will not take on new staff with federal judgements
  • You may find that you no longer have security clearance to leave the country, so your travel plans are likely to be restricted.
  • Your time will be swallowed up, as dealing with an outstanding Tax Lien can be complicated on your own. Overdue taxpayers are often put into an automated collections process. This can mean hours on hold with call centers or even dealing with in-person visits from collections agencies who may have been assigned to your case.
  • If you are not able to resolve your Tax Lien quickly, the situation might escalate to a Tax Levy, which is something else you need to deal with and has a more serious impact.
  • If the situation is not resolved at all, it can lead to you facing criminal charges which will severely impact your life

How Do I Resolve An Outstanding Tax Lien?

Professional guidance from an experienced and appropriately qualified tax firm will be needed to guide you through the process. It’s very important to resolve your tax lien as quickly as possible, because interest and other charges continue to accrue while the case is ongoing, which means the final amount owed is getting higher all the time. So, how can you resolve the case quickly?

  • Immediate payment of all owed amounts including interest and additional charges
  • Filing an ‘Offer In Compromise’. This may allow you to settle your tax debt with the IRS for less than the total amount owed. It can be an option if you either cannot pay your full liability due to reduced circumstances, or if paying them would constitute a significant financial hardship
  • Arrangement of an Installment Agreement, which is a plan to pay back the owed amount over a period of time
  • Qualifying for the IRS Fresh Start Program if you meet the requirements
  • Discharging Property – If you can obtain a Certificate of Discharge you may be able sell property free of the lien
  • Subordination – This is an application which allows other creditors to move ahead of the IRS in the queue for repayment, such as when a mortgage or a loan is critical. It does not remove the lien.
  • Withdrawal – Removal of the public notice that assures the IRS is not competing with other creditors for the rights to your property

There are lots of options to consider, and it can be a little overwhelming. That’s why the expert guidance of a firm like Clean Slate Tax can really help you to resolve matters to your best advantage. Once your Tax Lien is paid off in full, the IRS will release it’s hold on your accounts and properties within 30 days.

What Is The Difference Between A Tax Lien And A Tax Levy?

A Federal Tax Lien places a hold on all of your financial assets, but is not a notification of seizure. If it is not resolved, however, the next step is a Tax Levy. This is when your property is taken to pay back the outstanding amount that you owe. Tax Levies are put into force in various ways. Your wages may be frozen, your assets seized and impounded, and your back accounts taken over. Naturally, you will want to avoid this scenario, which is why prompt resolution of your case is the best course of action.

What Is The Timeline On A Tax Lien?

Many people wonder what really happens when a Tax Lien is declared. The timeline of events is individual in each case, as it’s affected by your personal circumstances. However, there are some fixed points which will apply to your case.

  • Penalties and accrual of interest are dated to start immediately. This means that if you have not paid your tax bill in full by April 15th, the IRS will start to charge interest on whatever amount you owe from this point onwards.
  • The APR (Annual Percentage Rate) of interest paid on your debt is usually 5% or 6%
  • The IRS may also change a late payment fee. This is 0.5% of the outstanding amount per month, to a maximum of 25% of the total owed.
  • Within 3 months, you are likely to receive notification from the IRS that a balance for payment is due, although they can start as soon as one month after non-payment. You may receive a series of remind letters, getting more serious in tone each time.
  • Within 6 months, an official Tax Lien will be issued, although this could be much sooner. This claims your assets in a legal sense and ensures first payment if they are sold.
  • Your account may be passed on to a private debt collection agency. If this happens, the IRS will send you a notification with the collection agency’s contact details, or they may contact you themselves.
  • If you owe a significant amount, your case may be assigned to a Revenue Officer. This is an IRS official who goes out into the field and collects taxes on behalf of the authority. Usually, this step is only taken in extreme cases where tens of thousands of dollars or more are owed.
  • Within 3 to 6 months, if the case remains unresolved, the State Department may choose to revoke your passport to stop you travelling. The Tax Levy may be issued at this point, and you could find yourself having to deal with things like vehicles being seized and sold at auction.

Avoiding A Tax Lien – What You Need To Do

As much as we may sometimes resent paying them, taxes are an inevitable part of life, and if you do not pay them, the result is unavoidable tax debt. This is a stressful situation to deal with and can severely impact your quality of life. A lot of people unfortunately go through this process – the IRS estimates that 10 million people each year end up facing tax penalties. If you get into this situation, the best course of action is to resolve matters as fast as you can, and the support and guidance of a professional tax firm is really important to get it all resolved.

Take Action – Once you’ve processed your tax bill, you need to take action – even if you cannot afford to pay the amount owed. Ignoring the situation certainly won’t make it go away, but it will make it even more difficult by leading you to accrue interest, late payment penalties and other charges which raise the amount owed and leave you further away from it being sorted. The penalties for not filing taxes can lead to criminal charges.

File For An Extension – If you hope to be able to pay, but cannot immediately, you can choose to file for an extension. In that situation, you should still pay as much of your outstanding balance as possible before the April deadline – this helps you to avoid incurring additional charges. If you cannot hope to pay at all within a reasonable timeframe, arranging a payment plan with the IRS can spread the costs out a little bit and still help you avoid some of the negative consequences of non-payment.

How Do I Get A Tax Payment Plan?

If you need more than 120 days to pay back the amount you owe, and you owe less than $50,000 (including penalty charges and interest) you may be eligible for a payment plan to help you spread out the payments. These payment plans can sometimes add on penalties and interest anyway, but they give you the chance to pay things back gradually and avoid the stress of a Tax Levy. It can be a good option for those in certain circumstances

How Do I Get An Offer In Compromise?

An ‘Offer In Compromise’ refers to an arrangement made with the IRS to pay back some, but not all, of the outstanding amount. In order to qualify for this, you need to prove that you would incur significant hardship under the terms of a payment plan covering the full amount owed. If you have a genuinely unaffordable tax burden, this can help you access some tax relief. The IRS will consider factors such as:

  • Your income
  • Your ability to pay the total amount owed
  • Your asset equity
  • Your recurring expenses

You should explore all the other payment options available before requesting this step. Generally speaking, the IRS will approve an Offer In Compromise when the amount offered is the best they are likely to be able to collect from you within a reasonable period of time.

How Do I Get A Tax Lien Released?

Each state has its own rules about when a lien will be released, but you can expect it to happen within 30 days of a completed payment. Recently, the Fresh Start Program has made it a bit easier for taxpayers to get liens released:

  • If you enter into an approved Payment Plan to resolve the full balance, with automatic direct debit payments
  • If it can be proved that the IRS did not follow correct procedure when filing the lien
  • If the statute of limitations has expired then the lien will be released
  • If you successfully apply for the Fresh Start Program

Once this happens, you will receive a copy of the lien release notification for your records and may need to contact credit bureaus and provide them with a copy.

How Can I Find Help With My Tax Lien?

Tax debt matters can be hard to understand. The help of an experienced professional can be invaluable to guide you through the complexities of your personal tax situation. Our team is experienced at navigating the often hard to understand ways that the IRS and state tax authorities operate and giving you the best advice to resolve the situation. We will work closely with you to understand the specifics of your personal circumstances and recommend an option that will best serve you. Contact us to work out a plan to resolve your outstanding tax debt, get rid of your tax lien and become debt-free.


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