Tax Liens – IRS and State Tax Collections
Tax bills arise for a variety of reasons and in a myriad of manners. Some taxes are simply the costs of doing business. Other taxes are assessed on the basis of your employment wages and 1099 contracting income. Still other taxes may be incurred as part of a business obligation to assess, collect, hold-over, and turn-over payroll taxes. However regardless of the tax obligation, that obligation must be paid or the taxpayer will face serious tax and financial consequences usually incurring a tax lien or levy. Taxpayers who fail to take action even after receiving notice of impending state government or federal government collection action, also face the potential loss of their rights to appeal outside of the administrative process. In short, taxpayers facing collections actions by the IRS or California taxing authorities face serious tax problems, but an experienced tax attorney can help the taxpayer work out the matter while mitigating the costs of coming back into compliance.
How Do I Know I Have a Tax Debt Problem?
Before the tax authority can take any action against a taxpayer for unpaid tax debts, the agency must provide the taxpayer with notice of the action. That notice will contain a statement of your collection due process rights which includes the right to request a court hearing within 30 days. If your tax collection issue is with the federal government you will likely receive a notice that is titled along the lines of:
- Notice of Federal Tax Lien
- Notice of Intent to Levy
- Final Notice – Notice of Intent to Levy and Notice of Your Right To a Hearing
If you receive one of the foregoing notices or a similar document from the IRS, it is wise to immediately seek the advice of an experienced tax attorney without delay. The attorney is likely to advise you that you must complete and file IRS Form 12153 Request for a Collection Due Process or Equivalent Hearing within 30 days. Furthermore, the taxpayer must list and explain all reasons for his or her disagreement with the collection action. Failure to timely file the request for due process can result in the loss of one’s right to go to federal court to appeal.
What Are the Consequences of Failing to Work out a Plan for Back Tax Debts?
Taxpayers with tax liabilities that remain unsatisfied will all, in time, face collection activity by the state or federal taxing authority. While the exact action taken will be dependent on the amounts owed and the particular obligation, these agencies have an array of legal tools to force repayment. For instance, if your tax debt is federal in nature the IRS may file legal papers to establish a tax lien, a wage or bank levy, offsetting of your tax refund, or the seizure of all or some of your property and assets. Left unaddressed, a tax debt can drain one’s savings, investments, and retirement accounts.
One particular difficulty that is common when a lien or levy has been put in place involves the sale, purchase, or refinancing of real estate. Typically, before one may sell a property with a lien, the lien must be addressed and removed to provide the new buyer with clear title to the property. Furthermore, if a taxpayer is considering refinancing his or her already existing mortgage, he or she will run into difficulties due to the lien. In order to refinance, the owner and taxpayer must request relief from the IRS through the agency’s consent to subordinating the lien so that the first mortgage may be satisfied. In some circumstances the IRS may be willing to grant this request because a reduced mortgage payment can free up resources to pay the tax debt. However, the agency is not under any obligation to grant this request.
Aside from the direct effects an unpaid tax debt can have on your financial accounts, the unpaid tax debt can also make it more difficult to get approved for a credit card, loan, or any other line of credit. This is because unpaid tax debts are reflected in one’s credit report. Unpaid tax debts will negatively impact an individual’s credit score and may result in additional financial difficulties. Any tax lien will appear in one’s credit history report for a minimum of 7 years but the information may appear for as long as ten years.
Furthermore, one the IRS takes action and files a Notice of a Federal Tax Lien (NFTL), the tax debt becomes a matter of public record. The taxpayer’s home address, tax amount owed, relevant tax periods, and additional information all becomes part of the public record. This may be embarrassing for some people. Others may not wish to have their name or family name associated with an unpaid debt.
Challenging an IRS Tax Lien to Get it Removed or Released
While the most straightforward way to remove a tax lien is to make payment and satisfy the debt, this approach is only appropriate when the taxpayer accepts that the debt is valid and is able to make the payment. Other options a taxpayer has to address a tax lien include:
- Discharge of the lien – A taxpayer may submit an Application for Certificate of Discharge from Federal Tax Lien. The seller must typically perform this action to provide the buyer with clear title. While the IRS typically grants this request, it is not required to do so. However, despite discharging the lien against a specific piece of property, the lien will remain against other property.
- Subordination of the lien – A valid Certificate of Subordination will permit other creditors to move ahead of the IRS in priority. The IRS can agree to a subordination but is more likely to do so when such action will make it more likely for the taxpayer to satisfy the debt or make payment towards its satisfaction.
- Withdrawal of the tax lien – Moving to have the lien withdrawn by the IRS is the most complete form of relief because the withdrawal will result in a disposition where it is as if the tax lien was never filed. Taxpayers may request the withdrawal of a lien by filing Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien when the taxpayer has satisfied certain requirements.
Taxpayers have additional options when seeking tax relief. Depending on their circumstances, they may consider an offer in compromise or a tax-motivated bankruptcy.
Potential IRS & State Tax Collections Solutions
If you have a federal tax debt that far exceeds your ability to pay, the IRS Offer in Compromise program (OIC) may offer a pathway to resolve your tax debt. However, less than one-in-five offers are accepted by the IRS. David W. Klasing has a deep background in taxation and understands the criteria applied by the IRS in assessing these types of offers. As such, David has developed a proprietary self-assessment approach to offers in compromise to increase the likelihood that your initial offer is in the IRS’ “ballpark.” From that point, our firm can work to ensure that the OIC makes financial sense for you by comparing the minimal acceptable offer to the total tax, interest and penalties owed. If the OIC makes financial sense, we prepare your filings and documentation. If your OIC is refused, we can work to appeal it.
In other circumstances, a tax-motivated bankruptcy may provide needed relief for a taxpayer. Despite perceptions, bankruptcy can be used to stop new collection attempts and wipe away some tax debts. In still other scenarios – particularly following a divorce or separation – innocent spouse relief may provide release from tax debts. However, this form of relief is only appropriate when the other spouse was responsible for the fraud or false filings that created the tax debt.
Questions and Answers on Tax Liens, Levys and Tax Garnishments
- Attorney-Client Conflicts
- What Tax Consequences will I Face When My Property Was Previously Depreciated and then Transferred Incident to a Divorce?
- Frivolous Collection Due Process Hearing Requests
- What Is the Tax Impact of Post Separation Payments with Separate Property Towards a Community Property Asset?
- Differences between a CDP Form 12153 and Form 9423
- What Are the Effects of Prenuptial Agreements on a Divorce?
- Spouses tax liability at life and death
- Divorce and Criminal Tax Exposure
- Divorce Transfer of Property and Tax Issues
- Can I Seek a Tax-Motivated Divorce or Annulment?
- Tax Issues Surrounding Divorce
- What Is Asset Dissipation?
- What are some events that can suspend or extend the collection statute allowing the IRS more time to collect on an outstanding tax debt?
- Can Divorcing Spouses Allocate Estimated Tax Payments?
- How long can the IRS collect on a past due debt?
- Does A Divorce Create a Conflict of Interest for a Family CPA?
- A Citizenship Renunciation FAQ
- How much time does the CA Franchise Tax Board have to collect on an outstanding tax debt?
- What happens when the collection statute expires?
- Should High Net Worth Couples Plan for Divorce Taxes?
- Is Tax Fraud Likely to Be Disclosed During Divorce Proceedings?
- When Can a Divorce Result in Both a Husband and Wife Facing Exposure for the Potential Investigation and Conviction of Tax Crimes?
- 2016 Changes to IRS Collections
- Is a Full Disclosure of Assets Required During a Divorce Proceeding?
- What Should I Do About a Divorcing Spouse’s Threatened Criminal Tax Disclosure?
- How are Alimony, Spousal Support, Palimony, or Child Support Payments Taxed?
- When should I file a Collection Appeal Protest (CAP)?
- What Happens When there is an Inequitable Division of Marital Property? Will I Incur Additional Tax and Other Liabilities?
- What if My Closely-Held Business Appreciated in Value During My Marriage?
- What happens if an employer continues to incur new payroll tax liabilities?
- How Can a Divorcing Spouse (and the IRS) Identify my Undisclosed Assets / Income?
- What Happens to My Retirement Accounts in a Divorce?
- IRS Collection Notices
- California Employment Taxes Basics
- What are the Mixed Sourcing rules?
Facing IRS Tax Lien or State Tax Collection Attempts?
If you have received a Notice of a Federal Tax Lien (NFTL), you are already facing the legal consequences of an alleged failure to satisfy a tax obligation. The receipt of legal documents of this type could ultimately result in the loss of your money, assets, and property. As such, this is a difficult experience for any individual. However, this is a problem that will only get worse without timely and strategic action.
The experienced tax professionals of the Tax Law Offices of David W. Klasing are experienced in handling unpaid tax debts and tax liens. To schedule a reduced-rate tax consultation with an experienced tax professional, call the Tax Law Offices of David W. Klasing at 800-681-1295 or contact us online today.