No taxpayer wants to receive news of a tax deficiency, tax audit, or other bad news from the IRS; however, it may turn out that the only thing worse than receiving bad news from the IRS is not receiving notice that you need to take action to correct a past tax filing or past tax mistake. Almost invariably, the longer a taxpayer takes to fix his or her underpayment of tax or outstanding tax bill the greater the amount of interests and penalties he or she is likely to pay. Thus, while it may be painful to receive notice of a tax lien or other adverse action by the IRS, not receiving the notice in a timely manner is worse.
Unfortunately for more than 24,000 taxpayers, a report from the Treasury Inspector General’s Office shows that problems in the tax lien process do occur.
When Can the IRS File a Tax Lien & What is Its Impact?
The filed federal tax lien represents the government’s notice to the world of its claim to your property because you have failed to satisfy a tax obligation that was due and owing. The lien against your property can be applied to any type of property including personal belongings, tangible and intangible assets, and real estate. However, a tax lien is only filed against the taxpayer when at least three facts are true.
First, the taxpayer has a tax obligation that the IRS has assessed on its books. Second, the IRS has sent a Notice and Demand for Payment informing the taxpayer of the amount owed to the government, and third ten days have passed and the IRS has not been paid. When these items are all true a lien in favor of the IRS arises automatically, and the IRS may file a Notice of Federal Tax Lien. At this point, with the filing of the tax lien, what was previously a private matter between the IRS and the taxpayer now becomes part of the public record with all of its attendant bad consequences.
What Effect Does a Federal Tax Lien Have?
A federal tax lien isn’t only a claim against the property you currently may own, it is also a claim against property you may come to possess in the future. The Notice of Federal Tax Lien is intended to give notice to your creditors regarding your status. Furthermore, it allows the federal government to establish the priority of its claim ahead of other creditors against you.
A collateral effect of a federal tax lien is a hit to your credit score and an easily accessible public record of your tax deficiency. The hit to your credit score is likely to make securing a loan, mortgage, or financing more difficult. Employers, landlords, and other individuals may not view such action favorably and you may face adverse actions from these individuals.
What can a Taxpayer Do When Facing Federal Tax Lien?
A taxpayer facing a federal tax lien has a number of options to approach the matter. However, every tax situation and IRS collection situation is unique and action should not be taken without a careful analysis of the surrounding facts and circumstances. Options taxpayers have to satisfy their federal tax lien include:
- Pay the tax in full – This option is the most direct, but it is inappropriate if you believe that the tax lien is erroneous or otherwise incorrect. However, if you believe that the amount due and owing is correct and you do not wish to challenge any penalties, you may pay the IRS via electronic payment, a credit or debit card, or with a check in-person or through the mail.
- Apply for an installment agreement or an offer in compromise – For taxpayers who want to pay their taxes, but are unable to pay the amount in full one of these programs may provide the flexibility to discharge the tax debt. An installment agreement can allow a taxpayer to arrange for a payment plan. An application for an offer in compromise can be filed if the taxpayer will not be able to pay the liability in full during the collection statute of limitations pursuant to strict IRS guidelines.
- Appeal the IRS decision – Most IRS collection actions are subject to appeal to the IRS Office of Appeals. The main options for appeal are the Collections Due Process (CDP) and the Collections Appeal Process (CAP).
- Request additional time – Taxpayers may ask the IRS to delay collection and report the account as uncollectable due to a significant financial hardship. Even if collection is delayed under this provision, penalties and interest will continue to accrue.
Taxpayers who fail to take action regarding a tax lien face a host of consequences including the seizure of his or her property to satisfy the tax debt. However, you do have options. To discuss your potential options to handle a tax lien call the tax professionals of the Brager Tax Law Group at 800-380-TAX-LITIGATOR or contact us online.