A Federal tax lien is not just a piece of paper, it is a legal claim to a taxpayer’s property. It arises by operation of law when Federal tax remains unpaid after demand for payment by the United States government. A Federal tax lien attaches all property and interests in property owned by the taxpayer or any property they own in the ensuing ten years.
A Federal tax lien is a “secret” lien, known only to the Internal Revenue Service and the taxpayer. The Internal Revenue Service it is forbidden by law from saying anything about the lien to any person other than the taxpayer, with only two exceptions:
First of all, it can bring a judicial proceeding to foreclose the Federal tax lien.
Secondly, unless the balance is de minimis, the IRS issues a notice of Federal tax lien (“NFTL”) against the taxpayer, and records it in the register of deeds’ office in the county of the taxpayer’s residence, the Internal Revenue Service records NFTLs as a matter of practice, to prevent third parties who purchase property from the taxpayer or lend money to the taxpayer from acquiring an interest in the taxpayer’s property superior to the Federal tax lien.
The three big credit reporting agencies include NFTLs in the taxpayer’s credit reports, affecting the taxpayer’s standing. Employers are, now more than ever, checking candidates’ credit before hiring them, an NFTL can affect the taxpayer’s employability in certain industries, like financial services, or tax administration.
Is it easy to make a tax lien go away?
Despite claims commonly made in advertisements for tax resolution services, a tax lien is not something you can just get rid of overnight. It continues in existence until the tax is paid in full or becomes uncollectible by the passage of time.
A taxpayer is not without resources when dealing with a tax lien. First and foremost, the taxpayer should make sure that the lien is in the correct amount, if the assessment is adjusted, the tax lien will adjust with it.
The taxpayer’s representative should pull the taxpayer’s account transcripts from the Internal Revenue Service, an account transcript reveals whether the tax was assessed on a tax return or a substitute for return. A tax return is prepared by or for the taxpayer, and presumably takes advantage of all available exemptions, deductions, and credits.
A substitute for return is prepared by the Internal Revenue Service, which does not know of deductions that may be available to the taxpayer, and resolves all doubts against the taxpayer, a substitute for return does not start the statute of limitations on assessment or collection running, if account transcripts reveal that substitute for returns have been filed for the taxpayer, the taxpayer should have actual returns prepared and filed as soon as possible, once the actual returns are filed and processed, the Internal Revenue Service will adjust the assessments to the actual amounts per the actual returns.
Can I be affected for noncompliance?
Account transcripts will also show whether penalties have been assessed against the taxpayer. Many penalties apply at a percentage of the tax not reported or paid on time.
Reduction in tax also reduces such penalties, the IRS will completely abate penalties upon a showing of reasonable cause for the noncompliance, the taxpayer’s representative should therefore find out the reason(s) for the penalties, and prepare an appropriate request for relief from the penalties, and submit it.
The result may be appealed to the Internal Revenue Service Appeals Office, and then litigated in United States Tax Court.
If, after the above action, an unpaid assessment remains, the lien for it will also remain, until the assessment is paid in full, or it becomes uncollectible by passage of time.
The statute of limitations is ten years, from the time the tax was assessed, while the lien remains extant, the IRS will periodically levy (seize) the taxpayer’s wages, bank accounts, or other property to protect it, unless the taxpayer resolves the account balance.
Resolution may include paying the account balance in full, entering into an installment agreement with the Internal Revenue Service, or persuading the Internal Revenue Service to post the account as currently not collectible (CNC).
Once a Federal tax lien attaches to property, it remains notwithstanding discharge of the taxpayer in bankruptcy. This is one of several reasons why bankruptcy rarely if ever is an effective means of dealing with tax liabilities.
Finding the right professional help may be the key to solve your debt problem, according to information released by the IRS about 1 out of every 8 of the nation’s professional tax return preparers failed to comply with new regulations for 2011 alone.
The IRS has announced that approximately 100,000 paid preparers prepared federal tax returns in 2011 without being properly registered. About 712,2000 paid preparers did register properly with the IRS and obtained a new Preparer Tax Identification Number (PTIN).
Paying the IRS can be difficult and you may need to Seek Professional help
The Internal Revenue Service will release specific property from a Federal tax lien, allowing the taxpayer to sell the property, provided the net proceeds of sale are paid to the Internal Revenue Service to the extent of the Federal tax lien.
Is imperative to keep in mind that if the taxes remain unpaid, the tax authority can then use a tax levy to legally seize the taxpayer’s assets (such as bank accounts, investment accounts, automobiles and real property) in order to collect the money it is owed.
Tax liens are publicly recorded and may be reported to credit agencies. These two features of tax liens effectively prevent the sale or refinancing of assets to which liens have been attached, and prevent the delinquent taxpayer from borrowing money.
The point is that a taxpayer should always do their best to resolve their tax debts. If the debt is large and hard to handle the best thing to do is to consult a professional. At the very least a free consultation can give one insight into the tax debt relief business, before it gets too late.
Andrew M. is a Southern California native and is an expert in the debt and tax relief industry for over 8 years. Take a look at the rest of his tax debt resolution content, posts, and articles for further information.