Tax Lien: Federal Liens Information On Delinquent State and County Property Taxes
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What is a tax lien?
When you neglect or fail to pay a tax debt, a federal tax lien becomes the government’s legal claim against your property.
A tax lien is a type of statutory lien that is created by operation of law and does not require the consent of, or a security agreement with, the debtor. Generally, in a financing transaction, the borrower is asked to clear any tax liens filed against any loan parties or any of its assets before the closing date.
When the IRS decides you have unpaid federal taxes, it may bring 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 swiftly. This includes the amount you are alleged to owe and 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
- The IRS can enforce it 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 you have paid off the total 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
Could not recommend Clean Slate Tax more for my tax relief! Highly knowledgeable and professional. They helped in a very difficult situation and handled it perfectly. Fees are reasonable and totally worth it.
Julie Mccarthy – 08/03/2020
How Do I Stop 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 from having to live without some of the severe restrictions that a Tax Lien places on your life. Enrolling in a payment plan signals that you are making an effort to repay what you owe, and can help 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. It’s wiser to avoid the risk by ensuring your tax affairs are in order, entrusting a reputable firm, and checking that you have enough tax deducted from your monthly paycheck to cover your expected tax bill. The IRS will usually catch up with people relatively quickly; if this is the case, you will end up owing far more than the initial amount. So it is better to work with the IRS on a payment plan than to have things escalate to the level of receiving a Tax Lien.
Avoiding A Tax Lien – What You Need To Do
As much as we 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. Unfortunately, many people go through this process – the IRS estimates that 10 million people each year face tax penalties. If you get into this situation, the best course of action is to resolve matters as fast as possible, and the support and guidance of a professional tax firm are critical to getting it all fixed.
- How Does A Tax Lien Affect Me?
- How Do I Resolve An Outstanding Tax Lien?
- What Is The Timeline On A Tax Lien?
- How Do I Get A Tax Lien Removed?
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
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.
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.
The only way to prevent a tax lien or levy is to pay your back taxes is to pay them. Work with the collection team. Please provide them with anything they request. Contact them if they contact you. Regarding an IRS payment plan, your tax balance will still accrue interest and penalties until it is paid. Still, if you allow the IRS to take at least three consecutive payments out of your bank account (a direct debit installment agreement), you may convince the IRS to withdraw the federal tax lien from the public record. You will still have to pay your tax debt, of course. To get on a payment plan, you can apply directly on the IRS website. Fees range from $0 to $225, depending on the program and your income.
You can ask for a compromise offer if you want to settle your back taxes for less than the total amount you owe. IRS audits usually accept less than half of the applications they receive yearly. You won’t be considered if you have filed all of your tax returns and made the required estimated tax payments for the current year (see how to do it here). Bankruptcies and audits are also not permitted.
It is not an appealing option, but bankruptcy may sometimes eliminate tax debt. However, it is a long process with many limitations, and it does not always succeed.
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 Can I Get Help With My Tax Lien?
Tax debt matters can be hard to understand. The help of an experienced professional can be invaluable in guiding you through the complexities of your 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 problem. We will work closely with you to understand the specifics of your 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.