What Is A Tax Lien?

There are many different types of taxes that you may be liable to pay

based on your circumstances and the assets that you own such as taxes on real estate, personal property and income related taxes. If you fail to pay any of these tax liabilities there are various actions that can be taken by law in order to try and recover the tax debts that you owe. This includes a tax lien, which is a lien that is legally imposed on a property to try and ensure you pay the taxes that you owe.

Tax Liens

It is important to bear in mind that a tax lien can be imposed by both federal and state governments for the non-payment of various taxes that you are liable for. When a tax lien is applied it can affect some or all of the assets you own as well as money such as wages or bank accounts.

The exact structure and details of a tax lien can vary based on factors such as the type of tax you owe, your financial situation, the assets you own and other factors.

A tax lien can make life very difficult financially because it means that the government has a rightful claim to your assets.

It can also have a negative effect on your credit status and report, which is why it is important to try and avoid these by either paying your taxes on time or speaking with a tax official/accountant with regards to possible solutions such as an installation plan where you can pay the tax you owe in affordable chunks.

How Will A Tax Lien Affect Me?

Depending on the situation you’re in, a tax lien will affect you differently. Tax liens show up as public records on your tax report, and that could harm your credit score. This is mainly because the reason for the lien is the problem, not the balance. Once the lien is filed you won’t be able to get a new credit card, a loan for a vehicle or car, or even sign a lease.

How Can I Remove a Tax Lien?

Tax Liens are also difficult to remove and have the potential to stay on your credit history indefinitely as the “seven year rule” does not apply to them as they do most negative credit items. There are many ways to remove a tax lien such as:

Reaching a settlement with the IRS
Paying off the lien in full
Requesting a withdrawal where you pay your lien in full or enter a payment program that will pay it off in full.

How Do I Release a Tax Lien?

Luckily, there are many different ways in which you can release a tax lien. Until you get back into compliance with the IRS, the effects of the lien will remain intact. A certificate of release of lien from the IRS will be needed in order to release a tax lien.

One method is if, the taxes owed are paid in full. Once the IRS receives the full amount for the taxes along with interest and penalties they will release the lien. You can also setup a direct debit installment agreement. This plan, in particular, is for taxpayers who cannot pay off their taxes in full. The tax lien can be withdrawn as long as you have less than $25,000 in tax debt. There is also the chance that the statute of limitations will expire with a non-enforceable lien. IRS debts have a statute of limitations that usually expires after a 10-year period.

What Is a Federal Tax Lien?

The IRS has a number of routes that it may take in order to try and recover money that is owed by taxpayers. If you are a taxpayer and you fail to make your tax payment, the tax office can put into place a federal tax lien, which is a legal claim against some or all of your property. This includes property such as your real estate, vehicles, personal belongings and any other financial assets you may have. Federal tax liens can be applied for monies owed on income tax, estate tax or gift tax amongst others.

Before opting for a tax lien, the IRS will assess your liability and then send you a Notice and Demand for Payment, which will explain what you owe in terms of taxes. If you then either refuse or for some other reason fail to make the payment, the IRS may consider opting for a tax lien. This is done by filing a Notice of Federal Tax Lien, which indicates to creditors that the government has legal entitlement to your assets.

A tax lien not only affects the financial assets and personal belongings that you own or have an interest in at the time of issue but can also affect any assets you acquire in the future as long as the tax lien is still in place. It is also worth noting that the tax lien may stay in place even if you file for bankruptcy. There are various options that could result in the withdrawal of the tax lien, which means that the government would no longer be holding rights on your assets. However, you would still have to pay your tax liability if this is done.

What Are the Types of Liens?

A tax lien is a legal claim made by the government when a person fails to pay one of a range of taxes, such as income tax, estate tax, or taxes on personal belongings. If payment is not forthcoming when the taxpayer receives a Notice and Demand for Payment, the next course of action from the government could be placing a tax lien against your property. These claims can be imposed by either the federal or the state government.

What Is a State Lien? As the name suggests, a state tax lien is imposed by the state government. It enables the government to exercise a legal right over the property of the debtor in order to secure the tax that is owed.

A Notice of State Tax Lien is issued before this action is taken. Depending on the assets owned by the taxpayer, the lien can apply to real estate or personal property. This lien then remains on the property in question until the taxes have been settled or another appropriate resolution is reached.

Before the Notice of State Tax Lien is issued, several steps will be taken by the government. Firstly, your tax liabilities will be assessed, after which a Bill for Taxes Due or a Final Bill for Taxes Due will be sent to you. There will then be a waiting period of 35 days, within which you must settle the tax debt or come to some arrangement before a Notice of State Tax Lien is issued.

How Long Does a State Tax Lien Last?

A statute of limitations is a legal time frame during which legal action can be brought against someone. The IRS generally has up to three years from the date you file a tax return (or are required to file a tax return) to assess additional liabilities on federal income taxes.

There are two exceptions with federal taxes: 1) if you underestimate your gross income by more than 25 percent or 2) if you fail to file a return or file a fraudulent return. Under those circumstances, the statute of limitations is extended to six years and no time limit, respectively. Additionally, the federal government has 10 years from the date the final amount is due to collect unpaid taxes. However, you can reset or suspend the statute of limitations if you 1) enter an installment agreement with the IRS, 2) reach an offer in compromise, or 3) enter bankruptcy.

On the other hand, states generally follow the three-year rule for state income taxes. However, several states do not follow the three-year statute of limitations rule. For example, Arizona, California, Colorado, Kentucky, Michigan, Wisconsin, and Ohio can extend up to four years to assess additional tax obligations. Meanwhile, Minnesota provides three and a half years, and Montana allows five years. Kansas, Louisiana, New Mexico, Oregon, and Tennessee all follow a three-year timetable with limited exceptions.

Checking with your local state government can help answer more questions about the statute of limitations in your own state. You may also find it easier to consult with a tax professional regarding a state lien. Tax professionals are your best line of defense from liens and levies placed on bank accounts, property, assets, and wages.

How Do You Get a Lien Removed?

A tax lien is the first step the Internal Revenue Service takes to recover back taxes. Once the IRS enforces a tax levy, it can freeze your bank accounts, seize personal property and assets, as well as garnish wages.

Consequently, you want to take every precaution possible to have a tax lien removed before the IRS acts. Thankfully, there are several ways to remove a state lien. First, states place limitations on how long a lien is valid. The rules vary widely by state, which makes speaking to a tax professional your first step in avoiding harsh wage garnishments and property seizures.

Secondly, you can enter private negotiations with the IRS or state government. You can discuss the possibility of settling unpaid taxes, for example. A tax professional can help you negotiate through arbitration, mediation, or informal discussions.

Taxpayers also have the legal right to file a court order. You may also consider lien stripping (available in chapter 13 bankruptcy) or lien avoidance (chapter 7 bankruptcy). After analyzing your circumstances, a tax professional may also recommend trying to enter a property lien removal process.

Avoid State Tax Liens

Liens give the state government a significant amount of power over your finances and assets. Unfortunately, things rarely turn out well for delinquent taxpayers once a tax lien is placed. Liens offer security for creditors by allowing the government (or another creditor) to seize property or take other legal action to satisfy debts and obligations. Further, liens are public record, which means they can destroy your credit score and make it very difficult to obtain new loans.

As a result, you should consider the most viable options for removing a state lien. The first, and most obvious way, is to pay off the debt in full. However, most taxpayers reach this predicament for a reason and simply don’t have the necessary funds. Consequently, settling with the state government is a viable option, but it is only recommended if you have qualified legal representation.

You also have the right to appeal a tax lien if you believe the claim is not legitimate. There are cases in which tax liens get released or forgotten but still stay on your property, for example. Disputing a claim by filing an appeal is a legal right you have as a taxpayer, but only under specific parameters.

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– Erica Dell

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Contact Levy & Associates for Dependable Tax Audit Services

Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.

There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.

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