IRS Tax Problems

Did You Receive an IRS Tax Lien Notice? Now What?

Did You Receive an IRS Tax Lien Notice? Now What?

Receiving a Tax Lien from the Internal Revenue Service means one of two things: Either somebody at the agency made a really big mistake (it happens), or you received notice of a tax bill and didn’t submit payment. Either way, the issue needs to be addressed, or else the next step could be significantly worse.

First, let’s clarify exactly what an IRS tax lien is. Every IRS Tax Lien says the same thing: 

“There is a lien in favor of the United States on all property and rights to property belonging to this taxpayer for the amount of these taxes, and additional penalties, interest and costs that may accrue".

That’s a lot of scary-sounding language, especially the part about “all property and rights to property.” Of course, the IRS does not file a lien against your property without cause. First, they assess your tax liability and send you a notice of how much you owe. It’s not until you ignore the notification that a lien gets filed, but once it does it means that the government has preserved its right to be first in line to receive the proceeds of sales of any of your assets, including any cash, physical property like vehicles or real estate, retirement funds, and your wages. 

While the best approach to a lien is to avoid it entirely by paying your tax bill, that is not always possible. So what are your options once the lien has been put in place?

Once a lien has been filed against your property, you will find yourself significantly hampered in any financial move you want to make. Applying for credit will be nearly impossible, as the lien will appear on your credit report, and all of your assets and future assets that you may purchase while the lien is in place will have the lien attached to them. This includes both personal and business property, so if you are a business owner it will also include your accounts receivable. And in case you were thinking that bankruptcy would provide a way out, that option is not on the table — IRS liens do not get discharged in bankruptcy.

The answer to an IRS lien is to make arrangements to pay the agency what you owe, and if you can’t afford to pay it in full, to file an “offer in compromise” which shows a good faith effort to acknowledge your debt and pay what you can. If you don’t qualify for this particular option, then an installment plan is another possibility. 

One way or another, the one thing you must do when you receive notice of an IRS tax lien is to respond to it. Ignoring it is the absolute wrong thing to do, as it can result in the next level in the IRS response to nonpayment, which is a tax levy.

When the IRS has not heard from you regarding your outstanding tax debt, they can go beyond securing their interest in your property and move to physically taking possession of it. Once a tax lien has been issued and has not gotten a response, they can seize and sell your assets.

To eliminate a lien and its associated aggravation, your best option is to pay off your debt in full. Once the IRS debt has been satisfied the lien will be released within 30 days. If immediate payment is not possible, there are a few other options, including a discharge of property which allows it to be sold free of the lien; subordination (which allows other creditors ahead of the IRS, making it easier for you to get a loan or mortgage); withdrawal, which eliminates the public notice entirely so that no creditors fear competing with the government for your assets.

An IRS tax lien is very intimidating, and unless you plan to pay it immediately in full, it can be a mistake to try to approach it on your own. For assistance and more information, contact a tax professional today.

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Steward Financial

Steward Financial

Jon Osborn is a tax preparer based in San Dimas, California. His company, Steward Financial Services, offers a broad range of tax preparation, accounting and business consulting for small businesses. He loves to work with clients who are looking for answers to complex tax and business planning issues. He has owned several small businesses and worked with over one hundred small business owners. He helps his individual and business tax clients find the best ways to spend their money in order to minimize IRS tax. Small businesses looking to grow, sell or just increase cash flow are one of Jon's specialties.

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