IRS resumed its normal tax debt collection processes on June 15, 2021, after having suspended proceedings in April 2020 due to the pandemic. So, if you are the unlucky recipient of a Notice of Federal Tax Lien, your best bet is to pay your tax bill off in full. But if you are unable to, below are some useful things to know.The International Revenue Service (IRS) will only send you a Notice of Federal Tax Lien after trying to contact you several times about a balance due and requests for payments. The IRS will first send a balance-due notice (known as a CP501) with a request that you contact them. Subsequently, if the IRS does not hear from you, they can send other tax balance due notices, including a CP504 notice indicating that they intend to levy or seize your bank account, garner your wages or take other assets.
Don't Ignore the IRS
If you don’t contact the IRS voluntarily after several reminders, a federal tax lien gives the IRS a legal right to seize your property in order to cover your tax debt. Currently, liens are automatically filed at certain dollar levels for people with past-due balances. The IRS will then issue a Notice of Federal Tax Lien. This document is publicly filed within state and local jurisdictions to notify other creditors of the IRS’s lien interest.
Get Professional Help
So, what should you do if you’ve received a Notice of Federal Tax Lien? This is a case in which you should strongly consider consulting a tax resolution specialist — someone who is highly knowledgeable about representing taxpayers and experienced in negotiating on their behalf in problem tax cases before the IRS. A tax resolution specialist will thoroughly analyze your financial position, inform you of all your options, and represent you in negotiating a resolution with the IRS to resolve the back taxes and remove the lien.
Don't Panic
Here are five important things to keep in mind right after you receive notice of the lien:
- You Shouldn’t Panic. There are several ways to remove a tax lien. It is possible to negotiate a payment plan with the IRS, make an Offer in Compromise (OIC), or petition for Hardship Status to reduce the amount of the debt owed if you cannot pay. Consult with a tax resolution specialist to determine which you may qualify for.
- Carefully save any notices or letters you receive from the IRS. They have important dates on them that will be necessary for the tax resolution specialist to know when researching your options. For example, the IRS collection process allows appeals to be filed in certain instances, especially if you don’t agree with the amount assessed or believe an error has been made. However, you must file the Collection Appeals Requests within specific deadlines. (That said, if you have misplaced or lost your IRS notices, don’t despair. In some instances, the specialist as your authorized representative can work with you to access and retrieve your tax information online.)
- If you are in bankruptcy, notify the IRS immediately. The bankruptcy may not eliminate your tax debt, but the IRS may temporarily stop collection. Call the number on your bill or 1-800-973-0424, and be ready with the following information: the location of the court, the bankruptcy date, chapter, and bankruptcy number.
- You can seek a discharge, subordination, or withdrawal of the lien. If you wish to sell or refinance your home, you must satisfy the lien before selling or refinancing it. You have several options to satisfy the tax lien. Generally, if you have equity in your property, the tax lien is paid out of the sales proceeds at the time of closing. Payment may be in whole or in part, depending on the size of the lien. You can request that the IRS discharge the lien to allow for the completion of the sale. You can also request a subordination, which doesn’t remove the lien but allows other creditors to move ahead of the IRS, making it easier to get a mortgage. A third option is requesting a withdrawal because it is in your own and the IRS’s best interest to remove it. A withdrawal will release the notice from the public record and assure other creditors that the IRS is not competing with them for the property, but you will still be liable for the total amount owed.
- If you haven’t organized your financial records, now is the time to do it. Your past tax records, information about your assets, and other information that would shed light on your monthly income and expenses will be helpful. But don’t do this if it will delay or distract you from contacting a tax professional for a consultation. Instead, contact your tax professional first.
If you are concerned about your tax obligations, don’t ignore the situation or spend time worrying about it. You don’t want to allow interest or penalties to accrue needlessly. Instead, consult the tax professionals at Myrick CPA to explore your options.