BY PHIL GOLDSTEIN
Goldstein and Lieberman, Co.
If you think credit debt can be hard to get out from under, you don’t want to think about what happens when you owe the IRS money.
When you have an IOU to the IRS, the IRS can establish a lien—a legal claim to your property. Your house or car can become security for payment of a tax debt.
In order to take such an action, the IRS must do the following three things
1. Assess the tax liability
2. Send notice that there is a deficiency and demand payment in that amount.
3. Allow ten days from the date of notification for payment to be made.
After taking the above steps, the IRS can then create a lien. When the notice of the lien is filed, the IRS warns other creditors about its interest in the person’s property. This lien remains public record until the tax debt is collected. In some situations, it may be used by the courts to prioritize claims.
Once a lien is filed, a person’s credit rating could be negatively affected. A business could be unable to obtain credit as a result. An individual could find it difficult to finance a home or vehicle. A lien on any home will make the property difficult to sell.
Although an IRS lien is serious business, it doesn’t always take precedence over other creditor claims. There is a process called “subordination” that could make the lien secondary.
When might a tax lien be withdrawn?
There are also circumstances that could lead to the withdrawal of the action–if the lien is filed too soon or not according to IRS procedures, for example, or if the taxpayer works out an installment agreement to pay the debt. The IRS might decide that the lien might impede the collection of the tax or the IRS Taxpayer Advocate (a representative from an independent office within the IRS who may be assist taxpayers in resolving their IRS problems) could determine the withdrawal would be in the taxpayer’s as well the government’s best interest.
Levy or a Lien
A Notice of Levy is another method the IRS may employ to collect unpaid taxes. A Levy enables the IRS to legally confiscate money or assets to satisfy the tax debt. “Money” might mean anything from wages to bank accounts, Social Security payments and even retirement income. “Assets” are things like cars, boats, artwork or real estate. Any tax refunds or state income tax refunds that are owed the individual could be applied to the tax liability as well. The law states that the IRS must wait 5 business days after filing a lien to send Notice of Levy. The Notice can be delivered in person, left at the taxpayer’s home or sent by certified or registered mail to the taxpayer’s address.
A person facing a lien or a levy from the IRS may not want to incur the additional expense of a tax professional, but this is not the kind of territory for someone unfamiliar with tax laws and regulations to dare to go it alone.