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Federal Tax Liens LifeBack Tax
Federal tax liens follow a set of guidelines defined by the IRS. A federal tax lien from the IRS places a claim on a delinquent taxpayer's property and assets until the taxpayer pays their tax debt. For an individual, this not only applies to property such as their house and car, but also financial assets such as wages, bank accounts, securities, social security benefits, and retirement income. In the case of a business, this includes all assets from land and buildings to inventory and accounts receivable, including intellectual property. Furthermore, the IRS not only claims the taxpayer's current assets, but also any "after-acquired assets"—assets that the taxpayer obtains while the tax lien is in effect.
A federal tax lien merely asserts that the IRS legally has a claim to your property and assets, and does not directly seize any assets. It is treated as a separate process from an administrative levy, in which the IRS takes your property to cover your debt. However, if the federal tax lien remains unpaid, the IRS may eventually seize your assets through a levy or foreclose the tax lien in court to cover your liability.
Fortunately, a federal tax lien may not arise unless the IRS first provides the taxpayer with an opportunity to pay their taxes. The first step in the IRS collection process is to assess the taxpayer's liability and bill them for their past due federal taxes. This is called a Notice and Demand for payment, and provides taxpayers with a ten-day window to pay their taxes in full. If the tax debt remains unpaid ten days after the Notice and Demand, a federal tax lien is automatically placed on the taxpayer's assets. Because the lien is created automatically, it is sometimes described as a "silent" or "statuatory" lien.
While the federal tax lien takes effect automatically without public notice, the IRS typically also publicly files a Notice of Federal Tax Lien (NFTL) to formally establish their lien and defend their claim to the taxpayer's assets. Unlike the tax lien itself, which is not necessarily public knowledge, a NFTL is part of public records and may affect a taxpayer's credit score for years, impacting their ability to obtain credit.
A NFTL ensures that the federal tax lien takes priority over other creditors' claims. Preexisting creditors' claims may have first priority over the IRS if their claim is attached to specific property and was filed in accordance with state filing requirements prior to the federal tax lien. For instance, if an individual taxpayer still has a first mortgage on their house before the IRS sends their initial Notice and Demand, the first mortgage lender generally has a stronger claim to the house than the IRS. However, if the taxpayer wants to place a second mortgage on their house after the federal tax lien goes into effect, the IRS would have a stronger claim to the house than the second mortgage lender. Since lenders would be unable to secure their claim against the IRS's, taxpayers are generally unable to secure a loan or mortgage while under a federal tax lien.
For taxpayers struggling to pay their tax debts, IRS provisions allow for several ways to deal with a federal tax lien. A taxpayer may apply to have a federal tax lien discharged from certain property, removing the IRS's claim to specific property. In order for property to be removed from the tax lien, it must meet one of the IRS's criteria for dischargable property, such as property that is worth at least twice as much as the taxpayer's liability, or property that has no sellable value. The taxpayer may also apply to have the tax lien subordinated, allowing other creditors' claims to take priority. By allowing other creditors to secure their claims before the IRS, the taxpayer may be able to obtain a loan or mortgage even while under a federal tax lien. However, even if the federal tax lien is subordinated, the IRS still has a claim to the taxpayer's property.
Under certain circumstances, a taxpayer may request the IRS to withdraw their Notice of Federal Tax Lien, removing references to the federal tax lien from public records. This eliminates any impact the NFTL may have on the taxpayer's credit reports or their ability to secure a loan with other creditors. The IRS may agree to withdraw an NFTL if it was filed incorrectly, if the taxpayer enters an installation agreement, or if the IRS determines that withdrawing the NFTL will help the taxpayer to pay. That said, withdrawing an NFTL from public records does not eliminate the federal tax lien itself; the taxpayer is stil obligated to pay their past due taxes.
A federal tax lien is released once the taxpayer's liability is satisfied. The IRS is required to release a tax lien within thirty days after the tax debt is paid in full. However, releasing a federal tax lien does not automatically withdraw the NFTL. The NFTL remains in public records and may continue to be included on the taxpayer's credit reports for up to seven years. Under the 2011 Fresh Start program, taxpayers may request to have a NFTL withdrawn after their federal tax lien is released.
If the IRS has filed a Notice of Federal Tax Lien against your assets, don't fret. We at LifeBack Tax Relief are experienced in assisting taxpayers with federal tax liens and dealing with the IRS. Should it serve your needs, we can help you to have your federal tax lien discharged or subordinated. Our experts will negotiate on your behalf to have the IRS withdraw their NFTL and to help resolve your tax liability, ensuring that your federal tax lien is released before the IRS takes further action.
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