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Understanding a Federal Tax Lien
A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all of your property, including real estate, personal property and financial assets.
A federal tax lien exists after the IRS:
-Puts your balance due on the books (assesses your liability);
-Sends you a bill that explains how much you owe (Notice and Demand for Payment) and you neglect to pay on time.
The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your business and/or property.
Paying your tax debt – in full – is the best way to get rid of a federal tax lien. The IRS releases your lien within 30 days after you have paid your tax debt.
When conditions are in the best interest of both the government and the taxpayer, other options for reducing the impact of a lien exist.
A “discharge” removes the lien from the Business or Property.
“Subordination” does not remove the lien, but allows other creditors to move ahead of the IRS, which may make it easier to get a loan or mortgage.
A “withdrawal” removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for your property; however, you are still liable for the amount due.
Two additional Withdrawal options resulted from the Commissioner’s 2011 Fresh Start initiative:
-One option may allow withdrawal of your Notice of Federal Tax Lien after the lien’s release. General eligibility includes:
Your tax liability has been satisfied and your lien has been released; and also:
You are in compliance for the past three years in filing – all individual returns, business returns, and information returns;
You are current on your estimated tax payments and federal tax deposits, as applicable.
-The other option may allow withdrawal of your Notice of Federal Tax Lien if you have entered in or converted your regular installment agreement to a Direct Debit installment agreement. General eligibility includes:
You are a qualifying taxpayer (i.e. individuals, businesses with income tax liability only, and out of business entities with any type of tax debt)
You owe $25,000 or less (If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting withdrawal of the Notice of Federal Tax Lien)
Your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier
You are in full compliance with other filing and payment requirements
You have made three consecutive direct debit payments
You can’t have defaulted on your current, or any previous, Direct Debit Installment agreement.
How a Lien Affects You
Assets — A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.
Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.
Business — The lien attaches to all business property and to all rights to business property, including accounts receivable.
Bankruptcy — If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.
Avoid a Lien
You can avoid a federal tax lien by simply filing and paying all your taxes in full and on time. If you can’t file or pay on time, don’t ignore the letters or correspondence you get from the IRS. If you can’t pay the full amount you owe, payment options are available to help you settle your tax debt over time.
If you have a Lien….Let Me Get Your Books Up-To-Date and Avoid penalties and any possibilities of the IRS taking further action against you personally and/or your business.
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