Owing money to the IRS or any other taxing authority puts your hard-earned assets and future income at risk. As with other creditors, taxing authorities can seize property, collect money from bank accounts, and garnish wages. However, unlike other creditors, they have the power to make legal claims against your property without obtaining a court judgment first.
A CPA is well versed and can help you tackle your tax issues with the IRS by negotiating.
Many delinquent taxpayers fear the IRS or a state or local government will place a lien against their property. If you own real estate or any other significant asset, this is a valid concern. A tax lien is a step in the collections process that applies to any taxpayer with assets. Thankfully, there are several ways to discharge a tax lien before the debtor faces property repossession.
Tax Lien Defined
Tax liens are legal claims against the assets of an individual or business that owes back taxes. Federal-, state-, and local governments can issue them. Liens are intended to guarantee tax payment by legally preventing the owner from selling the property. If the debtor fails to cure the lien, the creditor can impose a levy.
A tax levy gives the taxing authority the right to seize property. In the case of real estate, the government can foreclose the property, remove the owner or tenant, sell the home and keep the proceeds (up to the amount of the debt). If the sale produces less than the amount owed, the creditor can take additional collection action against the debtor.
Tax Lien Specifics
Federal and state governments can place tax liens against the property of taxpayers who owe back income taxes, while local governments place tax liens against real estate owners with overdue property taxes. It is important to understand that governments place tax liens against many types of property. For example, in addition to real estate, tax liens affect cars, RVs, boats, or any property with substantial value.
The placement of a lien does not mean the property will be sold. Delinquent taxpayers usually have the opportunity to cure the deficiency before the taxing authority seeks a levy. However, cash assets, such as bank accounts, are subject to levies when the government establishes the deficiency.
The Process of an IRS Tax Lien
Federal tax liens are the most serious because they generally involve far more money than state tax liens. Though property tax liens can also involve substantial sums, they are rare because most homeowners pay property taxes through escrow accounts.
IRS tax liens never come out of the blue. Issuing tax liens comes at great expense to the IRS, so it prefers to collect back taxes by other means where possible. This opens a window for delinquent taxpayers to settle their debts before a lien is issued.
The IRS collections process begins with a letter to the taxpayer showing the amount owed, known as a notice and demand for payment. At this point, taxpayers can avoid a lien if they pay the debt in full or enter into a payment plan. However, if the taxpayer makes no arrangement with the IRS, it can place a lien against his or her assets.
IRS liens are not specific to a piece of property. Instead, they attach to all the taxpayer’s assets, including securities, property, and vehicles. All assets acquired by the taxpayer while the lien is active also fall under its purview. For business owners, IRS liens also attach to any business property and accounts receivables.
In most cases, IRS liens survive bankruptcy, as do federal back taxes.
How To Get an IRS Tax Lien Released
When the IRS issues a tax lien, all is not lost for the affected taxpayer. It is still possible to negotiate a settlement with the IRS and get the lien released before it becomes a levy.
The IRS offers several programs that help taxpayers settle their debts without losing valuable assets. For example, some taxpayers are eligible for an Offer in Compromise, which allows them to reduce the amount owed. In many cases, the IRS will waive interest, fees, and penalties. In certain circumstances, taxpayers may qualify to have the tax owed reduced.
Are you facing the prospect of a tax lien?
If so, the worst thing you can do is ignore the IRS. Eventually, it will seize your assets.
Instead of risking your hard-earned assets, work with a CPA or tax professional who can negotiate with the IRS on your behalf. A qualified tax pro can often win IRS concessions and prevent liens or get them released.
Tax Avenger in Canton Michigan is a full-service tax and accounting firm that can address all your personal and business needs. Whether you need payroll services, tax preparation services, bookkeeping, business startup or more, we’ve got you covered. With more than 20 years of experience in tax and accounting, you know you are in good hands.
Furthermore, if you have tax issues that need to be settled such as a lien, our tax resolution services can help. Call and speak to a CPA about your tax and accounting needs today, Free!