© 2018 by Mark Eagan EA.

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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 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 or refuse to fully pay the debt in time.

 

At this point, the IRS will file a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property.

A lien is not a levy. A lien secures the government’s interest in your property when you don’t pay your tax debt. A levy actually takes the property to pay the tax debt. If you don’t pay or make arrangements to settle your tax debt, the IRS can levy, seize and sell any type of real or personal property that you own or have an interest in.

 

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.

 

HOW TO AVOID A TAX LIEN:

Easiest way to put it - pay your taxes in full and on time! File your taxes before the IRS has the time, or the reason, to send an IRS rep out to file a tax lien against you. Your credit score can be greatly damaged by a lien so it’s best to avoid them. 

If you cannot pay your taxes, all is not lost. There are a few ways you can prevent a tax lien: 

  • DO NOT ignore or misplace any notices or letters the IRS sends.

  • DO keep track of your tax status, and keep all of your records in a safe, secure place.

  • DO respond quickly to any notices, either by phone, mail or fax. Wait too long and the IRS might feel you are trying to avoid paying the debt, and file a lien.

  • DO contact the IRS immediately if you believe the tax lien was filed in error.

  • DO arrange for an extension if you cannot pay your tax debt by April 15th.

  • DO set up an installment agreement with the IRS if you cannot pay the debt in one full payment. If the IRS knows that you have negotiated an installment plan, they will not file a lien against you. If you fail to pay on schedule, you’ll lose your credibility with the IRS and they’ll file a lien against you immediately.

  • DO contact a professional tax professional for tax resolution if you are wary of working directly with the IRS. They can explain your options, your next steps, and help you set up any payment plans or extensions with the IRS. They can also help you file an appeal if a lien was filed erroneously.

 

If you owe IRS tax debt, have already received a Notice of Federal Tax Lien, or feel that a lien was filed against you wrongly, the Tax Man can work with you to determine the best next steps to ensure that the lien is cleared.

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