Articles Posted in Tax Debt

What is IRS Tax Lien Subordination?
Once the IRS files a federal tax lien, all other creditors or potential buyers have notice of the lien.  If someone buys your home, they will be buying the home subject to the lien unless you are able to negotiate a lien discharge. If you attempt to refinance your home, you will run into difficulties because the lender will not want their lien to be in a junior position to the IRS tax lien.

The general rule for lien priority is “first in time, first in right”, so if your first mortgage was recorded prior to the recording of the IRS tax lien, the first mortgage lender retains their priority. However, if the loan were refinanced, the lender would lose priority and fall behind the IRS if the home was foreclosed upon and the funds were disbursed to lienholders.

The IRS could give up its priority—which is known as tax lien subordination—which would allow the new lender to take a senior position to the IRS lien. Unfortunately, the IRS is not going to make such a gesture out of goodwill alone. They are only going to subordinate their lien interest if you have something to offer them, which usually takes one of two forms.

Can I Sell My Home Subject to a Federal Tax Lien?
Shortly after you fail to comply with an official demand for payment of your tax debt from the IRS, a secret lien attaches to all of your real property and personal property. However, the IRS can also file an official notice of federal tax lien on your home, and other property at the county recorder’s office, which puts the public on notice of the tax lien. This can seriously interfere with your ability to sell your home because any buyer would have to take the home subject to the lien.

However, the IRS will remove the lien—known as a lien discharge—in certain situations. By removing the lien, the IRS is giving up its right to this specific piece of property, which can be assigned a specific monetary value. The IRS will generally only give up this right if it receives something of equal value, or if there is sufficient equity in your other assets to convince the IRS that it will be able to get the money from your other assets.

For example, if you want to sell your home for $400,000, and you owe $300,000 on the first mortgage, the IRS has a lien interest of $100,000 on your home. If you want the IRS to give up this interest, you will have to either give $100,000 in value or show that you have other assets satisfactory to the IRS that will satisfy their claim.

What Happens After I Receive an IRS Notice?
The IRS sends taxpayers millions of notices per year. Whenever you receive correspondence from the IRS you should read it carefully and attempt to understand what the IRS is trying to tell you. This can be difficult because some notices are unclear to those who do are not familiar with tax laws or IRS procedures.

IRS notices can be informational, such as when you are notified that your tax return is going to be adjusted. However, you may still disagree with this notice, and you can attempt to take action to dispute the mistake by the IRS.

Other notices will warn you that the IRS is about to take a specific action. This could a Notice of Intent to Levy, which means that the IRS is about to seize some of your assets, including the funds in your bank account or a state tax refund. Another common notice is the Notice of Deficiency, which states that the IRS is planning to assess a tax liability against you, and gives you one last chance to dispute the amount in Tax Court before the IRS begins to collect it.

Which Option Should You Use to Settle Your Tax Debt?
Choosing the wrong option to settle your tax debt can be a very costly error. If you apply for an installment agreement, when you could have eliminated some of your debt with an Offer in Compromise, it could end up costing you thousands, and you can’t expect the IRS to notify you of your alternative settlement options. They will simply accept your payments, while you are forced to take on debt or deal with other financial difficulties in order to pay off your tax debt.

There are several options available to settle your tax debt. While this is by no means an exhaustive list, many taxpayers will be able to use one or more of these methods to reach a tax debt settlement.

Installment Agreements

Actions to Take Before You Can Pursue an IRS Tax Settlement
Before attempting to settle your IRS tax debt, there are a few things that every taxpayer should do. While some tax settlement cases can be fairly straightforward, there may be more advanced settlement options available for certain taxpayers, and missing out on these opportunities may prevent you from eliminating significant back taxes, penalties, or interest.

Follow these steps before attempting to settle you tax debt:

File Back Tax Returns

What to Do When You Can’t Pay Your Taxes
If you have an upcoming tax payment that you can’t pay, or have delinquent tax debt that is continuing to accrue, you may be tempted to delay filing your taxes. You may also want to avoid responding to any IRS notices you receive because you can’t pay off the tax debt listed on the notice. The desire to hide from your tax problems is understandable, but it is actually the worst thing you can do when you are unable to pay your tax liability.

Instead, you should file your taxes on time, respond to all IRS communications, and consider talking to a tax attorney about your options. Taking this proactive approach has several benefits, including the possibility of substantially reducing the amount of penalties and interest you owe and preventing any IRS collection actions.

Do Not Put Off Filing Your Taxes

Can the IRS Take My House or Car?
The IRS may seize your real estate, car, or other property to satisfy delinquent tax debt. The IRS will sell your interest in the property and apply the proceeds, after the costs of the sale, to your tax debt.

Before selling your property, the IRS will calculate a minimum bid price. You will be given the chance to challenge the fair market value determination of your property.

Then, the IRS will notify you and the public of the pending sale, and wait at least 10 days before proceeding with the sale of your house or other property. If there is money left over after the costs of the seizure and sale and your tax debt has been satisfied, you should receive a refund.

What To Do When You Receive an IRS Notice
Receiving a notice from the IRS is not something most people look forward to. You may be confused as to what the notice is saying, and afraid of the possible consequences, such as owing substantial back taxes, interest, and penalties.

However, there are two important things to know about most IRS notices:

  1. You may have the right to challenge or appeal the action the IRS is taking, and

Will the IRS Ever Return Seized Property?
The IRS is generally required to send you a notice before levying or seizing your property. You may be able to prevent a levy by timely requesting a Collection Due Process (CDP) hearing, and negotiating a payment plan or otherwise contesting the levy. You have 30 days from the date of the notice to request a CDP hearing.

There are situations where the IRS is not required to send you a pre-levy notice, and can take your property without giving you a chance to contest the levy. State tax refunds can be taken without notice, and the IRS can levy without notice if they believe that collection of the tax is in jeopardy.

There are also other situations where you may not get the chance to contest the levy until after your property has been seized. The IRS sends notices to your last known address, and you may never receive these notices if the IRS does not have your current address. You may also simply be unaware of your CDP rights or the 30-day deadline, and miss your chance to request a CDP hearing. Payroll taxes are also subject to different rules.

Is Certain Property Exempt From IRS Seizure?
The IRS has broad authority when attempting to collect delinquent tax, but there are limitations to what collections actions they can take. The IRS generally has to follow certain procedures before they can levy, or seize, your property, and certain property is exempt from IRS seizure.

Generally, the IRS must send a taxpayer a Notice of Intent to Levy, which gives the taxpayer 30 days to request a Collection Due Process hearing. This gives you a chance to avoid the levy by negotiating an IRS installment agreement, an offer in compromise, or disputing the underlying tax liability, if you have not previously had an opportunity to do so.

The IRS also has a general policy to only seize a taxpayer’s assets as a last resort. If you are attempting to negotiate and cooperate, you should be able to work out an arrangement and prevent your assets from being levied.