Tax lien is a process used by the federal tax office and local governments to collect owed tax money. If you don’t pay your taxes, the government may try to collect the amount owed by garnishing your wages, withdrawing it directly from your bank account, or seizing and selling property you own.
How does the tax lien work?
If you owe money to the federal tax office, a lien is a way to secure the owed amount by seizing assets. Before seizing assets, the federal tax office will provide sufficient warning. In a timely manner, you should find ways to prevent the tax lien from occurring.
The federal tax office must notify you by mail of any tax you owe, so be sure to open your mail. Update your email address and contact the tax office if you have financial issues.
If you receive a document titled “Final Notice of Intent to Levy and Your Right to a Hearing,” a tax lien may be imminent; the federal tax office can seize your funds or property within 30 days. At this point, if you are not already communicating with the federal tax office, you should contact them.
Examples of tax liens
A tax lien is a procedure used by the federal tax office and local governments to collect the money you owe. A tax lien can collect money in several different ways, including withdrawing funds from your bank account or garnishing your wages. Here are some of the most common strategies:
- Bank levies: The federal tax office allows you 21 days to contact them to pay the taxes or notify them of errors in the lien. After 21 days, the bank must send the owed amount to the federal tax office.
- Wage garnishment: Your employer must withhold a portion of your wages and send it to the federal tax office until your tax debt is settled.
- Property seizure: The federal tax office can seize property you own (such as a home, boat, or car), sell it, and apply the proceeds to your tax debt.
- Reduction of tax refunds: The federal tax office may seize amounts you would have received through tax refunds. The federal tax office can seize federal, state, and local tax refunds until the state sends the money to the federal tax office instead of sending it to you.
- Other options: Tax authorities can collect money in unexpected ways. If you do not have cash liquidity to settle tax debts, they may be able to find other forms of value, such as your Social Security benefits or business assets.
Can a tax lien be revoked?
It is possible to revoke a tax lien. You have the right to appeal and attempt to cancel the tax lien and prevent it from proceeding. You can even request creditors to return seized assets to you afterward.
To complete the appeal, contact the federal tax office immediately to arrange payment of your tax bill and request the cancellation of the tax lien.
Note: If you need additional help appealing against the tax lien to have it canceled, consult a certified public accountant (CPA) or an enrolled agent (EA) or a local tax attorney about how to proceed.
A tax lien is usually revoked when you pay your tax debt. However, in some cases, you can appeal and have the federal tax office revoke the tax lien for other reasons.
The federal tax office must revoke the tax lien if:
- You have paid the owed amount. The collection period has expired before the lien was issued. You will be able to pay your taxes if the lien is revoked. You have established an installment agreement, and the terms do not allow for the lien to continue. The value of the property exceeds the owed amount, and revoking the lien will not prevent the federal tax office from collecting the owed amount.
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Tax liens can cause significant financial hardship for you, although the federal tax office may postpone the collection process. However, as long as the tax debt remains outstanding, you will eventually need to address it.
Tax Lien vs. Tax Levy
A tax lien is a legal claim against assets or property, while a tax levy is a legal claim to the future on property to obtain the amount owed. A tax lien is not a public record and should not affect your credit report, while a tax levy is public record and is likely to affect your credit report.
A tax levy can cause problems if you want to sell or refinance assets since it may be necessary to pay off or settle the tax debt before you gain full control of the asset. Lenders do not want to be in second position behind the federal tax office, so they are usually hesitant to approve a loan on property with unpaid levies.
How to Prevent a Tax Lien
There are ways you can use to reduce the chance of a tax lien being placed on your assets. If you cannot prove that the lien is unjust, or if you are unable to pay your tax bill immediately, you may still be able to prevent the lien by contacting the federal tax office and reaching an alternative agreement.
Pay Your Tax Bill Over Time
You do not always have to pay your tax bill in full by April. If you are facing financial difficulties, it may be possible to set up a payment plan with the federal tax office that allows you to pay your taxes over a longer period.
You may have to pay interest and penalties, but documenting an installment agreement with the federal tax office prevents them from assuming that you have simply decided not to pay.
Making an Offer
You can also negotiate and try to settle your tax debts with the federal tax office. An offer in compromise allows you to show that you will not be able to pay what you owe, given your income, expenses, and assets. If successful, the federal tax office will allow you to pay less than your total tax bill.
FAQs
How can I remove a tax lien?
To remove a tax lien, you will need to contact the federal tax office and request the lien be lifted. If the federal tax office denies your request, you can appeal, whether the federal tax office has already placed a lien on your property or not. The federal tax office must remove the tax lien if any of the following conditions apply:
- You have paid your debt to the federal tax office in full.
- The collection period has expired before the lien was issued.
- Removing the lien will help you pay your taxes.
- You have an installment agreement with the federal tax office that does not allow for a lien on your property.
- The value of the property exceeds the amount owed, and removing the lien will not prevent the federal tax office from collecting the amount due.
How do I know if I have a tax lien?
The federal tax office will only place a lien on your property if you have ignored tax billing notices and have not paid your taxes. They will also inform you by sending you a document titled “Final Notice, Notice of Intent to Levy and Your Right to a Hearing.” If you receive the final notice, contact the tax office by calling the number on your billing notice. If you are concerned that you may have missed the notice, you can contact the tax office at 1-800-829-1040, or 1-800-829-4933 for businesses.
Source: https://www.thebalancemoney.com/tax-levy-basics-315213
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