What You Need To Know About Tax Liens

Tax liens and tax levies are quite hectic if you owe any back taxes. Here’s what you need to know about these tax issues and how you can actually remove a tax lien from your record.

What Is A Tax Lien?

It refers to a claim the government makes on your property if you are past due on payment of your income taxes. If you don’t handle a federal tax lien immediately, you could be slapped with a tax levy next. Here, the actual property will be seized to pay back the taxes owed. Note that, tax levies include garnishing of wages or asset seizing as well as frozen bank accounts.

How Can You Be Affected By A Tax Lien?

If you owe the IRS back taxes and are given a federal tax lien, here are some of the consequences that might befall you.

• Negative Consequences On Your Credit Status – Note that, tax liens don’t appear on the credit reports. However, the IRS can file a public notice of the imposed tax lien. Therefore, all the creditors will know that the government has a right to seizing your property. It will affect your ability to get a loan. This post from Tax Crisis Institute goes in-depth into all you need to know.
• Blocking Refinancing Or A Home Sale – During title searches, any tax liens imposed will be identified. If you own the house you are trying to sell or refinance, you might be forced to use your equity to pay your taxes so you can close any sale.
• Time Wasting – If you have any back taxes, the IRS will funnel you into the ACS (automated collection system). Here, you will spend a lot of time on hold with the call center. In some cases, you might be assigned to a revenue officer, thus you would be forced to make visits in person.
• Tax Levy – After having a tax lien imposed on your property, the worst case could be a tax levy, especially if you don’t pay the overdue taxes.

How To Get Rid Of A Tax Levy Or Tax Lien

If there is a tax lien or tax levy on your property, here are some of the best tips to get rid of it.

1. Pay The Overdue Taxes – It’s an obvious solution but it’s the only way to remove a tax lien or levy. Simply put, you need to cooperate with the collection action. If they contact you, make sure you get back to them. Maintain constant communication to avoid any issues later on.

2. Get An IRS Payment Plan – The tax balance will continue increasing because of penalties and interest until you pay it off. However, you can agree to a direct debit installment where the IRS takes out at least 3 consecutive payments from your bank account. Next, you can allow the IRS to remove the tax lien from the public record but you still need to pay the overdue taxes. You can apply for the payment plan on the IRS website. The fees can be $0 or as high as $225, depending on the payment plan and your current income.

3. Request For An Offer In Compromise – Here, you will request to pay back the overdue taxes for less than the full amount owed. Of course, there are many terms and conditions and the IRS accepts very few of such requests. However, to be considered, you need to file all your current tax returns and make the estimated payments for that year. Your request will be denied if you are being audited or bankrupt.

4. Fill An Appeal – You can request for a hearing for the collection due from the office of appeals in the IRS, especially if you want the tax levy or tax lien to be reviewed. If you are in complete disagreement with the decision of an IRS employee about imposing a tax levy or lien, you can request a meeting with the manager of that specific employee as well as the office of appeals so they can review your case.

5. File For Bankruptcy – It’s not a pretty option but it might be the right way to get rid of any tax debt. Note that, filing for bankruptcy is a very long process and there are many rules in places. In some cases, it doesn’t work so you need to be prepared for that outcome as well.

In conclusion, you can always seek the advice of a tax expert to help you get rid of the tax lien or levy.