If you’re unable to pay taxes owed to the IRS before they’re due, and you’ve made no attempts at setting up an installment payment plan or other means of payment – the IRS has the power to attach a tax lien to property you own. This typically only happens after the IRS has sent you a number of notices over many months to try and obtain your cooperation for the payment of back taxes owed.
A tax lien placed by the IRS means that they’ll have all rights over that asset. You can only restore your rights to the property (land, home, car, etc) when you’ve paid off your taxes in full and the tax lien is removed. You can’t sell the land or property if the IRS has placed a tax lien on it. A Notice of Federal Tax Lien will be filed if you’ve received a Notice and Demand for Payment of taxes and you neglect to pay or refuse to pay within 10 days after receiving the notice.
A tax lien is the first step taken by the Internal Revenue Service to collect taxes owed. It will be established in the amount of your tax debt. The tax lien will make your financial situation so complicated that it normally forces an individual to pay their taxes. When a tax lien is filed, your creditors are all publicly notified that the IRS has a claim against all of your property – including any property you may obtain after the lien has been filed. The notice is used by the court system to establish priority in possible sales of real estate or bankruptcy. The tax lien means that the IRS receives it’s money for back taxes owed before any other creditor can receive payment from you. If after a tax lien is placed on your property you still do not pay the taxes – the IRS will begin to levy and seize assets in exchange for taxes owed.
Tax Liens and Credit Rating
When a tax lien is filed, your credit rating is likely to decline. You will find it next to impossible to get a loan, or financing for a car, credit card, mortgage, or even to sign a lease on an apartment. To avoid credit rating complications which can cause you problems for years to come, it’s in your best interest to pay your taxes before a tax lien is placed.
How a Tax Lien Can Be Released
You’ll receive a Release of the notice of federal tax lien within 30 days of paying the tax due, including all interest and fees, or within 30 days of having the amount adjusted by the IRS. You can also receive a release of the tax lien within 30 days of the IRS accepting a bond that guarantees your payment of the debt.
You are also responsible for paying for fees associated with the state’s filing of the tax lien and release of the lien. These fees are added to the amount you owe.
Common Forms of IRS Levy
If an individual does not take action to pay off the taxes they owe after the IRS places a lien on the taxpayers property, it is likely that the IRS will eventually begin to levy. The IRS will commonly begin with a wage garnishment – which means they will take a percentage of your paycheck each payday. They can also levy a bank account in your name. If future income taxes show you are owed a refund – the refunds will be kept by the IRS towards the amount you owe in back taxes.
What to Do if the IRS Places a Tax Lien on Your Property
An IRS lien will only be removed if you pay the amount owed in full or you’ve come to an agreement for paying the back taxes. You may not realize that you have options for making payments to the IRS if you can’t afford to pay your taxes all at once.
The IRS offers installment agreements, which allows you to make monthly payments towards the amount you owe. There are a number of options for settling back taxes for less than the total amount owed in certain circumstances. Talk with a tax professional to figure out your best tax settlement method.