Hypothetical situation: It’s April 15th, and you just found out that– rather than that nice refund check you got last year– you owe the government a big chunk of change. And it’s a bigger chunk than you can afford. Now what?
Well, let’s say you don’t pay. It’s a weird concept, but remember, this is all hypothetical. Let’s say you don’t pay your taxes in full when you file them on or before April 15th. Then what? Well, you’ll get a bill from the IRS. You might pay this bill off in one lump sum, or you might be able to work out an installment program, or you may even be able to work out an Offer in Compromise and pay a smaller amount altogether. Any of these options are perfectly acceptable ways of getting out from under that tax debt.
But what if you don’t take ANY of those options? Then what?
That’s when the IRS could file a federal tax lien. For everyone who just said, “They’ll file a what?” to themselves, an IRS lien gives the IRS a legal claim to a taxpayer’s property as security for payment of a tax debt. This arises when:
- The IRS assesses the liability,
- The IRS sends a Notice and Demand for Payment, and
- If the taxpayer neglects or refuses to pay the debt within 10 days of notification, the IRS may then file a Notice of Federal Tax Lien in the public records.
The Notice of Federal Tax Lien tells creditors that the IRS has a claim against all the taxpayer’s property, including property acquired after the lien is filed. The lien attaches to all property (such as homes and cars), as well as all rights to property (such as the accounts receivable of a business). Think of it like a big, fat sticker on your permanent record that announces to the world, “This guy’s a deadbeat.” The IRS Collections may place a lien on your property to protect their interests in collections, even if you have an installment agreement in place.
So how do you get rid of this big ugly sticker? The easiest way is to pay off the debt– all of it. Of course, Making payments on a lien will lower the amount you owe, but the “sticker” won’t disappear until you’ve paid the IRS. Can’t pay the amount in full? Another option is to file an appeal. You have a right to a Collection Due Process (CDP) hearing five business days after the first filing of a Notice of Federal Tax Lien. At the conclusion of the hearing, the IRS Office of Appeals will issue a determination, and if you do not agree, you will have 30 days to seek review of the determination in the United States Tax Court.
Want to delve a little further into hypothetical circumstances? Let’s say your appeal doesn’t go through. Is there any other way for the lien to go away?
Wait ten years. A federal tax lien will continue until the assessment has been satisfied, or until the statute of limitations is reached, at which time the lien is no longer considered enforceable. Usually, ten years after a tax is assessed, a lien releases automatically. Or the IRS might turn that lien into a levy– but we’ll save THAT topic for another day.
So, if you find out that you owe the IRS money, it’s best to bust out your hypothetical checkbook and just take care of it once and for all. Because it’s a whole lot less fun when that lien “sticker” goes from hypothetical to actual.
As you might imagine, enlisting the help of a tax professional such as an enrolled agent can be helpful in situations such as these. Even for seasoned tax professionals, dealing with the web of IRS rules, regulations and paperwork can be complex. Fortunately there is a tool that can help.
Tags: installment agreement, IRS Collections, irs compromise, IRS lien, irs offer compromise, IRS offer in compromise, lien, offer and compromise, offer in compromise, offer in compromise help, offer of compromise, tax compromise, tax offer compromise, tax offer in compromise
