Federal tax liens are on-record documents that can be filed by the IRS against taxpayers with unpaid taxes. They are public notifications that the taxpayer has unpaid federal tax debt.
These notices are often attached to the taxpayers’ personal property or real property, along with a record that states the full amount owed to the internal revenue service. In the event that the taxpayer sells their property while it has a federal lien on it, the tax debt will be paid to the IRS before the taxpayer receives any profit. Whatever is left after the back taxes are paid is the amount of money the taxpayer will get from the sale.
What is the Difference Between a Tax Lien and a Tax Levy?
People often think that tax liens and tax levies are the same things, however, they are actually very different. While a tax lien is a document that the internal revenue service files in order to protect the money that the government is owned by the taxpayer, a tax levy is a forced collection of the back taxes. The IRS collects this money through the confiscation of the taxpayer’s bank accounts and paychecks.
If you need help understanding whether you have had a tax lien or a tax levy placed on you, think about your property. If you have not had your property physically removed but have only had a notice put on it, you have a tax lien. When a tax levy is placed, the IRS will physically take your property in order to collect your tax debt.
Being Notified of a Federal Tax Lien
You will receive notification from the IRS before they file a tax lien against you. The IRS will send you a letter to remind you of the back taxes that you owe. This is the first step in the process of filing a tax lien. The letter they send you will demand payment of your debt. If your debt is not fulfilled within ten days, the tax lien will take effect.
Once the tax lien is in effect, the IRS can publicly file a notice of the lien which could have a negative financial impact. It’s important that you do what you can to avoid having a tax lien filed against you.
How to Prevent a Federal Tax Lien
The best way to prevent a federal tax lien is by paying your taxes in full before the lien is filed. Unfortunately, this is not always possible for all taxpayers. If you are not able to pay your taxes in full, there are still ways to prevent a tax lien from being filed against you.
Installment agreements are a great way to satisfy the back taxes that you owe. With an installment agreement, you are making a commitment to make small, regular monthly payments to the IRS until your tax debt is paid off.
In order to set up an installment agreement, you will need to fulfill certain requirements. You will also need to make an effort to contact the IRS about an installment agreement to prevent them from filing a tax lien.
The IRS will not file a tax lien if the taxpayer sets up a guaranteed or streamlined installment agreement. Guaranteed installment agreements are for those with a tax debt of $10,000 or less. Streamlined installment agreements are for those who owe back taxes of $25,000 or less. In order to avoid a tax lien, it’s important to bring your tax debt under $25,000 and reach out to the IRS for an installment agreement.
Once a tax lien is filed against you, your options will be limited. Reducing your debt and contacting the IRS to ask for an installment agreement before a tax lien is filed is the best idea for resolving your tax situation.
Tax Lien Removal
If you have a tax lien filed against you, it can be removed. This happens when your balance is paid in full or is satisfied through an offer in compromise, if the lien was filed in error, or if the tax debt expires and is no longer recoverable.
The two most common types of removal are known as withdrawal and release.
If a tax lien is determined to have been filed in error, the internal revenue service will withdraw it. This can happen in certain circumstances, such as when the wrong taxpayer is targeted for the debt. If that happens, the lien will be removed as if it was never filed at all.
Contact the IRS right away if you think that a tax lien has been filed against you in error. Once you contact the IRS, they will assign an agent to go over your information and verify that you do not owe the back taxes. They will then prepare the necessary paperwork and rescind the tax lien.
When a federal tax lien is released, it means that the property is no longer held by the lien. This happens within 30 days of payment being made in full or of an installment agreement being made. All notices and records will be updated to show that the lien was released.
Thanks to the Fresh Start Program, taxpayers with back taxes under $25,000 may be eligible to have their tax lien released. If your tax debt is over $25,000, consider making a payment to reduce your debt or transferring debt to a credit card or home equity line of credit.
Can I Buy a House with an IRS Lien?
People are often concerned that they will not be able to buy a house if they have a federal tax lien. While it may be more difficult to obtain a home loan while you have a tax lien filed against you, it is possible.
When you have a tax lien, you are not automatically disqualified from getting a home loan and buying a house. However, there are typically a handful of steps that your lender will want you to follow before they will approve you for a home loan.
You will need to work towards improving your tax situation in order to get a home loan. Being able to show that you are actively working on paying off your tax debt and getting your tax lien released is essential for obtaining a home loan.
You may also have to take additional measures such as manual underwriting. While it can be tricky to get a loan with a tax lien, it’s not impossible. Be prepared to work on your tax debt and be transparent with your loan officer.
Getting Help with Your Tax Lien
If you have unpaid taxes and have been contacted by the IRS, or if you have had a federal tax lien filed against you, you may want to get help from a tax relief company. Working with a tax relief company such as the IRS Tax Relief Network can help you resolve your tax lien as quickly as possible. Our professional agents know the ins and outs of tax liens and will be able to figure out the best route for your situation.
We can look at your case and help determine the best route to get your tax lien removed. You don’t have to go through this alone. Contact the IRS Tax Relief Network today.