IRS Federal Tax Lien, What do you do when you get an IRS TAX LIEN?

Taxpayers who owe the IRS receive many IRS notices.  It gets confusing as to what each notice means and what powers the IRS has regarding each notice.  One such confusion is between IRS tax liens and tax levies.  These terms are sometimes used interchangeably, however, they are quite different.  It is important to know the difference.

What is a Federal tax lien?

A Federal tax lien may be filed by the IRS when a taxpayer owes $10,000 or more in unpaid tax debt.  It is not a levy nor garnishment which are “collection methods” for the IRS to collect on a tax obligation.

It is a document that is filed and recorded with a county government (usually where the taxpayer lives or does business,) which notifies the general public that a taxpayer has an unpaid IRS tax debt.

How an IRS tax lien affects a taxpayer

Tax liens seem a bit mysterious as to what power they give to the IRS.  In legal terms, they “attach” to a taxpayer’s property, which can be either real property (i.e., your house) or personal property (i.e., your car).

If this property is sold while a tax lien is in effect, the IRS will be paid out of the sales proceeds before the taxpayer is paid.  So, if these items are never sold, there is no fear of the IRS collecting.  However, tax liens are commonly reported to the various credit agencies and can ruin a taxpayer’s credit.

Liens Are Different from IRS collection methods

The IRS generally notifies a taxpayer that a tax lien has been filed by Notice of Federal Tax Lien.  Prior to this Notice, the IRS has made threats that a notice will be filed.

A Federal tax lien is a way of protecting the IRS’s ability to collect the tax debt due.   In contrast, collection methods or enforced actions are IRS forced collection of the tax debt due.  These methods include:

• Wage garnishments/wage levies: continuously confiscating money directly out of a paycheck;
• Bank Levies: confiscation of money directly out of a taxpayer’s bank account.
• Property seizure: seizure of property directly and selling it off to pay the tax debt;
• Federal and state income tax refund levy: confiscating your tax refund before you receive.

How to prevent a tax lien

The best way to prevent a tax lien is to pay off the tax debt when due.  If this cannot be done, then setting up an installment agreement may avoid this result.  Entering into certain IRS installment agreements will avoid the filing of a tax lien.

If you are able to bring your balance (includes combined tax, penalties and interest) down below $25,000 and set up an installment agreement, called a Streamlined Agreement, generally no federal tax lien will be filed.

To do this, you can always liquidate bank accounts and other assets, or get a loan provided the costs are lower than the costs of the IRS tax debt.  Also, in order to get into a payment plan, the IRS requires a taxpayer to be compliant.  This means all required tax returns must be filed and all estimated tax payments must be current, if applicable.

How to remove a tax lien

Once a federal tax lien has been filed against a taxpayer, it is much harder to remove.  A federal tax lien may be removed by lien withdrawal or lien release.

Tax lien release.  Releasing a federal lien means that the lien no longer encumbers your property. Upon releasing a lien, county records will be updated to reflect that the lien has been released.  However, the fact that there was once a federal tax lien will remain on your credit report for up to ten years.

Most federal tax liens are automatically released by the IRS after the tax debt is paid in full, generally after 30 days.   Be sure to get a copy of the lien release from the IRS to forward to the credit reporting bureaus to update all credit reports.

Tax lien withdrawal.  Withdrawing a federal tax lien means the IRS will revoke the lien, as if the lien was never filed. It used to be that withdrawals only occurred when the federal tax lien was filed in error (for example, if it was filed against the wrong person).  Now, a taxpayer can get a release and then request a withdrawal after the release to lessen the effects of the tax lien.

The IRS will withdraw or release a tax lien if:

• it was filed in error;
• the entire balance is paid off;
• the outstanding balance is satisfied through an offer in compromise or settlement of the tax debt due;
• a taxpayer brings the tax debt balance under $25,000, sets up a streamlined installment agreement and makes three consecutive direct debit payments; or
• the lien becomes unenforceable. An example of this is when the ten-year collection statute has expired.

Taxpayers needing assistance in dealing with tax liens and IRS collections should seek the advice of a tax attorney.  The San Diego Tax Attorneys at Delia Law have many years of tax resolution experience and will competently represent you before the IRS.  Please call for a no-cost tax attorney consultation for tax resolution at (619) 639-3336. We look forward to helping you.

This blog post is not intended as legal advice and should be considered general information only.

Keywords:  IRS tax lien, federal tax lien, tax lien, IRS tax levy, IRS tax debt

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IRS Collection Notices – List of IRS Collection notices

If you have received an IRS Collection notice or an IRS collection letter it is important to understand what it means and what to do.  Your livelihood may be at stake. IRS letters tend to all look the same, and are quite intimidating, but they don’t have to be.

When you have tax debt due with the IRS, eventually your account will go into IRS collections, especially if you do nothing.  The collection process can actually take some time, even several months.  Each collection notice comes typically five weeks apart.

Types of collection letters from the IRS

The IRS collection letters include:

CP 14.  This notice is sent by the IRS when you have a balance due.

CP 501.  This is the first reminder notice that you will receive from the IRS if you have an overdue balance due.

CP 503.  This is the second notice to remind you of your balance due.

CP 504.  This is when the IRS starts to get really serious.  This is a Final Notice of Intent to Levy.  This notice tells you that if the amount is not paid in full after this this third and final notice, the IRS will levy your state income tax refund.

CP 90.  This notice represents the intent to seize assets and gives notification of your right to a hearing.  Retirement benefits, salaries, real estate, automobiles, bank accounts etc can also be included in the levy.

CP 91/CP 298.  This notice represents the intent to seize 15% of social security benefits to pay the unpaid balance.

CP 297.  This notice represents the intent to seize assets and is sent to your business. The IRS intends to levy assets if no actions are taken.

LT 11/LT 1058.  This letter is a Final Notice of Intent to Levy and Notice of Your Right to Hearing.  This indicates that the IRS has made numerous attempts to collect. If no action is taken within 30 days, the IRS has the right to levy or seize assets.  The IRS may also place a Federal tax lien on your property as well.

What are the most serious IRS Collection notices?

It is pretty easy to figure out that the most serious letters are:

• CP 90/297 Final Notice of Intent to Levy and Notice of Your Rights to a Hearing and;
• CP 91/298 Final Notice Before Levy on Social Security Benefits

These two notices are the only ones that allow the IRS to start proceedings to seize your wages, bank accounts, vehicles, real estate and business assets.  The other notices can be important and urgent, but they are not threatening. Only the “final notices” give the IRS legal rights.

When you receive a Final Notice, realize that it provides important legal rights.  These rights include the ability to file an appeal to have a hearing to settle the case and take the results to U.S. Tax Court if they are not acceptable. It is important to note that IRS collection action must stop while an appeal is pending provided it is filed within 30 days from the issuance of the notice.

What to do if you receive an IRS collection letter?

Generally, taxpayers are in a state of anxiety when they receive these types of IRS notices. It is important to stay calm and just read the letter….and check to see if it is a “Final Notice.”  This is really when a taxpayer is in jeopardy.

If you agree with the balance due, look to tax resolution with a payment plan, currently not collectible status or offer in compromise.  This decision must be done quickly as active collections are taking place.  It is best to get tax help with a tax attorney to get a resolution put in place most advantageous to you and your financial situation.

If you do not agree with the balance due, submit the required information to substantiate your claim.  And remember, when submitting any information to the IRS, always keep copies for your records.

The San Diego Tax Attorneys at Delia Law have many years of tax resolution experience and will competently represent you before the IRS.  Please call for a no-cost tax attorney consultation for tax resolution at (619) 639-3336. We look forward to helping you.

This  post is not intended as legal advice and should be considered general information only.

 

Keywords:  IRS collection notices, IRS Collection Problems, IRS Collections, IRS Final Notice, IRS levies and property seizures, IRS Seizures

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