Paying taxes is said to be one of the only certain things in life. The government will always get their take from your earnings. However, if you have unpaid taxes, local governments could eventually sell your house via a tax lien. In this article, we will discuss what tax liens are; how they can affect you and how to remove a tax lien.
What is a tax lien?
If you are late in paying taxes, the government is obligated to recover their cut by placing a claim on your assets. A federal tax lien is, therefore, can allow for a government’s legal claim against your property. The amount to be paid includes the owed amount, penalties, and interests that have accrued over that time.
The lack of settling a federal tax lien is followed by a tax levy which involves actual seizing of your assets to pay for any owed tax. Tax levies are recovered through withholding money from your paycheck, asset seizure, and forfeiture of bank accounts.
How tax liens work
The party responsible for the collection of taxes will create a tax lien certificate and then auction it off publicly. The person who purchases the tax lien certificate is given the right to collect the lien, plus the interest accrued from the owner of the property within a stipulated period. If the property owner doesn’t fulfill their repayment obligation, the certificate holder can undertake property foreclosure.
Upon I.R.S. slapping you with a tax lien, there are a few ways how it can affect you:
- Negatively affect your creditworthiness.
Even though credit reports do not show tax liens, IRS is in a position to file a public notice, notifying creditors that the government has a right to your property which will reduce your chances of securing a loan. - Your property will be listed on the Lien Search Report.
This means that even if your property is listed for sale, homebuyers are less likely to purchase it if there are any liens on it. The only way to sell such property is if it is highly discounted.
- It’s a time-wasting process.
When your taxes become overdue, the IRS pools all the late taxpayers into an automated collection center (ACS). Since over 10 million people are usually late for payment, if you have any queries or want to raise an issue about your tax status, it will take a very long time for you to be assisted. - Loss of security clearance to leave the country.
Since payment of these charges is your legal obligation. When you are slapped with a tax lien or tax levy, you may end up being restricted from leaving the country hence affecting your travel plans.
- Probability of a tax levy.
After the IRS files a federal tax lien and you fail to settle your dues, the next step is that the IRS issues a notice of Intent to Levy. A tax levy may lead to foreclosure of your property.
How to Stop the Tax Lien
Failure and late payment of taxes adversely affect the quality of your life as one ends up with inevitable tax debt. According to IRS, millions of people find themselves in this situation and hence end up with hefty tax penalties. If you find yourself in such a situation, the best way to deal with it is by acting fast.
You might need the guidance of a professional tax firm to help you in resolving the issue fast.
Here are ways to prevent a tax lien:
- Settling all the owed amount immediately.
Resolving your tax lien as fast as possible is the best way to deal with a tax lien. This is because the interest and other charges continue to accumulate as the case is going on. This means that the final amount continues to increase every time you delay with payment. - File an Offer in Compromise (OIC).
This is generally an agreement between a taxpayer and the Internal Revenue Service that allows a taxpayer to pay off their tax liabilities for less than the initial required amount. Your petition will only go through if you cannot pay your dues in full due to unavoidable circumstances or if paying them to result in financial distress.
- File an appeal.
You can request for a collection due process hearing from the IRS Office of Appeals. This will aid you in reviewing a lien or a levy notice. In case you are in a disagreement with an IRS employee you have a right to ask the office of Appeals to review your case.
- File for bankruptcy.
Filing for bankruptcy can be used to forego an accrued debt. The process is however tedious and takes a long time for it to successfully go through.
- Subordination.
If you have several creditors that are awaiting repayments from you, you can fill an application that allows them to receive payment earlier than the IRS in the queue of payment. Such includes payment of a mortgage.
- Acquiring a Certificate of Discharge.
Certificate of Discharge allows you to sell your property without having to pay the lien. One can use the amount received from the sale of the property to settle any outstanding tax payments.
How to find a tax lien
To find out if the IRS has put a lien on your property, you can contact a department in IRS called the Centralized Lien Unit through (800) 913-6050. You can then work with the IRS lien unit and ensure that they know of your payment plan.
The lien is eventually lifted once you begin a payment plan or fully paid any amount of the overdue taxes.
Conclusion
Issues with tax debt can be complex and complicated to comprehend. Using the aid of an experienced tax firm can be very beneficial for your personal or business taxes. Tax firms have knowledge and expertise in dealing with the IRS and state tax authorities. They will give you informed ways of resolving any situation. They are also known to work closely with you and deal with every issue using your terms.
A tax debt may bring a lot of limits to your life. Get rid of your tax lien and maintain a debt-free life to ensure that you enjoy access to funds and avoid unwarranted penalty charges.