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When you have federal tax debt that has not been paid, the IRS can place a federal tax lien on your property. This gives the government a claim to your property, which means it can be seized to repay the taxes you owe. A lien can be placed on personal property, including bank accounts and wages, assets, real estate, and vehicles.
The IRS places a tax lien after other attempts to collect your debt have been unsuccessful. When taxes are assessed, you will receive a notice in the mail from the IRS. If you do not respond to this notice, either with payment or by making arrangements for installment payments, you are at risk for a federal tax lien.
Before the lien is placed, you will receive a public document called a Notice of Federal Tax Lien. This notice is also placed on file to let your creditors know that the government has a legal right to your property. If you try to sell your house, for example, you will be unable to do so because the lien gives the IRS first right to the proceeds from the sale.
Some of the detrimental effects of a federal tax lien include the following:
The lien does not necessarily result in a levy if you enter an installment agreement or make other arrangements with the IRS. Once the levy process begins, however, your property can be seized to satisfy your tax debt.
The only foolproof way to get rid of a tax lien is to pay your federal tax debt in full. Once this step has been taken, the lien will be released within 30 days. However, you may qualify for other options that would remove the lien. These include:
Paying your tax balance in full is the best way to avoid a federal tax lien, but it isn’t the only way. As soon as you receive a tax bill, contact the IRS to discuss arrangements if you are unable to pay the past-due balance. Some of the options available to taxpayers include:
Even if you can’t afford to pay your taxes, you should always file all tax returns. That’s because the failure to file penalty, which is assessed monthly, is 5 percent of your total tax balance. If you file your return but do not pay the taxes owed, the penalty drops to 0.5 percent of your balance.
The terms “lien” and “levy” are often confused with one another. A lien is the actual legal claim the IRS has on your property, while a levy is an action taken to seize the property as a last resort to collect past-due taxes. Through the levy process, the IRS can seize your real estate, vehicles, wages, bank accounts, retirement accounts, and other assets.
If you have a federal tax lien on your property and fail to make arrangements to pay your taxes, you may receive an official IRS notice titled “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.” This signifies that if you do not take action, your property will be seized by the IRS.
Three requirements must be met for a levy to be carried out:
Property that is seized by the IRS because of federal tax debt is sold, and the proceeds are applied to your account. You have the right to appeal throughout the levy and lien process, so it’s important to be aware of your rights as a taxpayer and closely follow the instructions on notices you receive from the IRS. These notices will detail your right to appeal and outline the process for doing so.
If you recently received a levy notice, it’s not too late to act. Call the IRS right away at the number on your billing notice or 1-800-829-1040 to discuss your options with a qualified agent.
If you are able to prove that repaying your IRS debt would make it impossible to meet your basic living expenses, the IRS will cease collections activity for a limited time period, after which your account will be reevaluated.
You can apply by completing IRS Form 433, which asks for proof of your financial status, including details about your monthly income and expenses. Keep in mind that your balance will continue to accrue monthly penalties and interest.
If you are granted CNC status, the lien will remain on your property, which prevents you from selling it without using the proceeds to pay your tax debt. However, the IRS will not proceed to a levy as long as your account remains CNC.
If you disagree with a decision the IRS has made about your tax account, you have the right to an appeal. These procedures are outlined in Publication 1660. You’ll also receive appeal instructions that apply to your specific situation on your official IRS notice about collections.
Collection due process is the first step to contest the IRS decision and can be undertaken if you have received one of the following notices:
During due process, you can represent yourself or be represented by a tax attorney, certified public accountant (CPA), or enrolled agent qualified to practice before the IRS. If your income is at or below 250% of the federal poverty threshold for your state and household size, you may qualify for free representation through a Low-Income Tax Clinic.
When you receive one of the notices listed above, follow the instructions included to request a hearing under collection due process. For a lien, you must be notified by the IRS within five days after the lien is filed and have 30 days after notification to request a hearing.
Complete Form 12153, Request for a Collection Due Process or Equivalent Hearing. You will be asked to list the reason for disagreeing with the lien. Possible reasons include:
If you need assistance with your tax debt, Solvable can help. Answer a few brief questions today to get matched with vetted debt relief companies who specialize in helping individuals who owe money to the IRS. Get on the path to a brighter financial future.
Andrea Miller has been writing and editing web content for more than 10 years. She lives in the Philadelphia area and loves hiking, movies, and spending time with her husband and two kids (9 and 4).