An IRS tax lien poses certain challenges to a taxpayer, but it’s a problem that can be addressed through a variety of available legal options.
RELATED: 9 Most Common Types Of Tax Liens
The Definitive Guide to Removing an IRS Tax Lien from Your Property
Step 1: Be in the Know: What an IRS Tax Lien Is About
The IRS has systems in place to ensure that they are able to collect back taxes and the resulting interest from delinquent taxpayers. One such system is called a tax lien.
An IRS tax lien is akin to loan collateral. When you borrow from a money lender, loan collateral is usually settled prior to the completion of the financial deal.
This collateral will serve as your lender’s protection in the event you fail to cater to your loan obligation. The only difference between loan collateral and an IRS tax lien is with the former you are in agreement with the deal.
Meanwhile, with a federal tax lien, you are essentially handed a legal reprimand. It serves as a message from the IRS that your unsettled back taxes have reached a critical point.
IRS tax liens are the agency’s way to “secure” tax debt.
Secure Debt: Debts backed up by collateral, such as a house or other forms of asset and property.
Step 2: Be Up to Date: Know Your Tax Payable
The IRS is up to date when it comes to their tax records. This is why you should be up to date with your tax payable, as well.
If you fail to pay your taxes in full, without any prior settlement arranged with the IRS, the agency will send you a Notice and Demand for Payment.
Upon the date of receipt of the aforementioned legal correspondence, you have 10 days to respond by way of paying your back taxes in full. Once those 10 days have expired and you still have yet to settle your back taxes, the IRS will automatically impose a federal tax lien on your assets.
Here assets include houses, vehicles, and money. If you happen to be a business owner, all assets related to it may be covered by an IRS lien as well, depending on the amount of back taxes you owe.
Step 3: Be Mindful: Know the Repercussions of an IRS Tax Lien
Once your home is attached to a federal tax lien and you are in the process of selling, it will be a challenge to get your property off the market. This is because home buyers are understandably wary of properties attached to an IRS tax lien.
There’s a way around this difficulty, however. That is by applying for a tax lien release from the IRS, which basically allows for your property to get transferred to another name.
A tax lien release is given at the IRS’ discretion. The agency can either grant or withhold this permission.
Once an IRS tax lien has been imposed upon assets, its legal validity will last for 10 years. At any point within this timeframe, the IRS can foreclose a property attached to an IRS lien.
After this period, the IRS can either end or reinstate the tax lien, as they see fit. Even after full repayment, tax lien records remain for seven more years from the date of lien expiration.
An IRS tax lien reaches its most critical point via the so-called tax levy. A tax levy is a lawful seizure of assets due to gross payment neglect.
These repercussions are enough arguments for timely and complete tax payments.
Step 4: Be Strategic: Know Your Tax Lien Release Options
If you have been served an IRS tax lien on your house, you must not lose hope. There are ways to get rid of it.
Here are your options.
This happens to be the surefire way for a taxpayer to get a tax lien release. The IRS is legally mandated to provide you with a Certificate of Lien Release within 30 days upon completion of payment.
If the IRS fails to comply with this rule, you can file a lawsuit against the agency.
An IRS lien withdrawal does not exempt you from your tax responsibility. What it does is remove the Notice of Federal Tax Lien on your property’s public records.
This is most beneficial if you are considering reselling your home. As mentioned earlier, properties attached to an IRS tax lien are more difficult to close in the real estate market.
However, to be eligible for lien withdrawal, you must be able to meet the agency’s set criteria. These criteria may include having back taxes below $25,000 and the ability to pay it all off within 60 months.
Also, you might need to agree with a repayment plan that will be directly wired to your bank account.
Step 5: Be Proactive: Sell Up
The best scenario is to sell your property prior to a tax lien. If you suspect the IRS will soon serve you with a federal tax lien, it is best to put your property on the market, if you intend to do so in the first place.
But if it’s a little too late for that, your second best option is to ask for a lien “discharge” from the IRS. This agreement will allow you ease with regards to reselling your property since its title will be “spotless.”
This arrangement is normally allowed by the IRS if you have sufficient equity in your house to settle your back taxes.
Having your property slapped with an IRS tax lien can be a distressing scenario. With careful examination of its cause and effect, you will have a better understanding of how to deal with it going forward.
Do you have any queries regarding an IRS tax lien? Please do not hesitate to share them in the comments section below.
If you owe back taxes, visit taxreliefcenter.org for more information on tax relief options.