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Federal Income Tax Liens

Posted on September 9th, 2016


When the IRS can’t seem to make progress in collecting taxes from a taxpayer, it resorts to Tax Liens and Tax Levies.

Tax Levies are orders issued by the IRS to banks or employers or others holding a taxpayer’s funds for those holders to pay the taxpayer’s money to IRS to apply on his tax debt rather than to pay it to the taxpayer. Congress has given IRS the power to collect funds to apply to taxes in this manner. IRS generally makes a great effort to collect the tax without a levy. Sometimes, from the government’s point of view, it is necessary to levy someone’s property to convince the taxpayer to cooperate with the system, and to pay their tax voluntarily. Tax levies are not “public record”, so they don’t appear on one’s credit report On the other hand, the levies are direct communications to people who owe the taxpayer money or hold his property–people with whom he does business–of the taxpayer’s outstanding tax debt, which may damage one’s reputation as much as listing the debt on one’s credit report.

Tax Liens

Tax Liens are statements put on the public record that an individual owes taxes, and that the government has a claim against all of his property. The Tax Lien is usually filed with the Register of Deeds in the county where the taxpayer lives, or for a business, where the business operates. The lien can be filed with the real property records, in which case the lien must be paid or otherwise removed before real estate can be sold in that county. The lien can also be filed with the records of personal property liens, where it would appear to anyone examining personal property records, and would have to be removed before the sale of personal property (personal furnishings, or business equipment or other property). Tax liens are public record, and usually appear on a person’s credit report.

Internal Revenue Service often does not make any further effort to collect on a tax lien, as the taxpayer himself will have to approach IRS to have the lien removed, if there is property that he wishes to sell, either now, or sometime in the future. Tax liens are valid for ten years, unless removed by IRS action. If a taxpayer owns property and makes no effort to resolve his tax bill, IRS has the power to foreclose its tax lien on real or personal property.

A tax lien is a declaration by IRS that a taxpayer owes taxes, and that the government will assert a claim against any of the taxpayer’s property when it is sold or disposed of… The tax lien is filed in public records and generally appears on a taxpayer’s credit report.

Tax liens allow RS to assert its claim on the taxpayer’s property without having to go through the immediate effort of learning who owes the taxpayer and issuing levies to those people. Liens even apply to property the taxpayer acquires in the future. In general, liens apply on a county by county basis. If IRS files a lien where the taxpayer lives, the lien may not attach to property the taxpayer owns in another county. (The absence of a lien does not forgive the taxpayer’s tax debt, of course.)

Removal of Tax Liens & Levies

Taxpayers can request that tax liens and levies be removed. Generally in order to have a levy removed, the taxpayer must make some arrangement with IRS to pay the tax, or at least pay that portion of the tax that IRS believes the person can pay.

The procedure to have a lien removed is stated on the lien notice. Call the number on the notice, and your options will be described to you. IRS is cooperative in removing small liens. Liens relating to large tax debts are generally not removed, even if additional collection measures such as installment payment agreements are put in place.

Taxpayers against whom a lien is filed often make arrangements to pay IRS, in order to avoid harsher collection measures such as levy of one’s accounts receivable or wages. A first option is often to enter into an Installment Payment Agreement with Internal Revenue Service. To establish the installment amount, the Taxpayer and IRS review the Taxpayer’s income and living expenses, and hopefully agree on an amount that the Taxpayer can pay monthly against his tax. IRS employees are directed to leave Taxpayers with sufficient income to pay basic living expenses, even if it means IRS can receive no monthly amount at all.

A second arrangement to have a lien or levy removed would be by making an Offer In Compromise in which a smaller payment is offered in lieu of the larger tax debt. The Offer In Compromise is also based on the Taxpayer’s ability to pay, so it also involves presenting IRS with financial information about property owned and monthly income and expenses. IRS procedures have become more liberal in recent years, encouraging taxpayers to file Offers In Compromise, but the criteria for having offers accepted are still quite strict, and most Offers are declined.

Tax Lien Due Process Hearing

Taxpayers against whom a tax lien is being filed are notified prior to the filing of the lien, and are entitled to a Due Process Hearing, to verify that IRS has followed proper procedures in filing the lien. Taxpayers request the Due Process Hearing by filing Form 12153 within 30 days after receiving a Notice that IRS plans to file a lien against them. Requests received after the 30 day deadline are also considered, but are not entitled to appeal adverse rulings.

Due Process Hearings are very useful to taxpayers, as they stop collection activities while waiting for a hearing, and they give taxpayers a chance to propose resolutions to their tax debts other than the lien proposed by IRS. The taxpayers’ proposals can include corrections of tax return information, payment of the tax before filing of the lien, making an Installment Payment Agreement, or possibly even making an Offer In Compromise.


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