what is a tax lien

What Is a Tax Lien and How Do You Remove One?

There were over 23.4 million tax returns with balances due in the 2019 tax season.

You may find yourself in the position of having a tax lien levied against your property. While it can be alarming, a tax lien can get mitigated with the right steps.

What is a tax lien, and how can you remove it?

Let’s take a look.

What Is a Tax Lien?

A tax lien is a claim that the government can make against your property, including your real estate and other assets. It is a result of you being behind on your income taxes.

The lien itself is only a legal claim against your property. Its purpose is to secure the tax authorities’ interests in your property, which could include your home or vehicle. Liens occur when you fail to pay tax debts, such as your income taxes.

By the time a lien gets levied, you will have received a bill from the IRS that explains how much you owe. This is the CP501 Notice or Notice and Demand For Payment. If you don’t respond to the CP501 Notice, you may get a CP502 Notice as a follow-up.

If you neglect to pay your debt on time, the IRS will file a public document called the Notice of Federal Tax Lien. This will notify creditors that the federal government has a legal right to your property.

If you don’t take care of the actual tax lien, an actual tax levy could come next. This is the actual seizure of your property in order to pay your taxes.

Effects of a Tax Lien

Once the IRS files a public notice of your tax lien, your ability to get any kind of loan is compromised. It could also cost you a lot of time trying to communicate with the Automated Collection System (ACS.) If a revenue officer gets assigned to your case, you may be subject to in-person visits.

If you are trying to sell or refinance your home, the tax lien will likely appear in a title search. You will probably get required to use some of the money you get from the sale of your home to pay off your taxes.

You will likely have your property seized if you do not pay off a tax lien, so it is best to manage the situation right away. The lien also applies to any business you own.

If you file for bankruptcy, your tax debt, lien, and a Notice of Federal Lien may continue after the bankruptcy.

Find out How Much You Owe

The first step toward resolving a tax lien is to get as much documentation as you can. This includes your CP501 and CP502 notice, which tells you how much you owe.

Compare your IRS notices against your credit report for accuracy.

Pay off Your Tax Bill

In many cases, the only way to pay off a tax lien or levy and cooperate with the collection agency. The IRS will release your lien in thirty days after you have paid off the debt.

Other options are possible when conditions are in the best interest of both the government and the taxpayer.

Find out If a Payment Plan Is an Option

Your tax balance will continue to accrue interest and penalties until you pay it off. If, however, you allow the government to take at least three consecutive payments directly out of your bank account, you may be able to get the IRS to withdraw the tax lien from public records.

The IRS has a Fresh Start Program that allows taxpayers to pay off substantial debt within the course of six years. Each month, you will make the required payments that have been decided upon based on your current income and the combined value of your liquid assets. By the end of the program, you should have your tax debt paid off in full.

The Fresh Start Program is available to both individual taxpayers and businesses. If your tax debt is less than $50,000, you are eligible to initiate the Fresh Start Repayment process at any time.

Tax-payers who have been unemployed for more than thirty days may be eligible to have their tax penalties waived. They can also request a six-month extension to file and pay their taxes.

Use the IRS Appeals Process

It is possible to appeal for a discharge from a lien. The lien will, however, remain against other pieces of property not included in the lien.

To be considered for the appeals process, you need to have filed all of your tax returns. You will also be required to make all estimated tax payments for the current year.

You can request a collection due process hearing from the IRS Office Of Appeals if you want a review of a lien or levy notice. You can also ask the Office of Appeals to review your case if you disagree with an IRS employee’s decision.

Whichever way you resolve the lien, a withdrawal of the lien is the best possible solution. If you obtain a withdrawal, it will be as though the lien was never levied in the first place.

Removing Your Tax Lien

What is a tax lien? It is a claim made against your property and other assets due to unpaid taxes. If one is levied against your home and other assets, getting it removed is the best way to avoid property seizure.

For more information on avoiding foreclosure, contact us today.

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