Understanding The IRS Collection Process And Legal Notices
Federal Tax Liens and its impact on taxpayers
December 15, 2023
Federal Tax Liens can have a consequential impact on taxpayers, affecting their financial well-being and credit score. Subsequently, raising difficulties for individuals to apply for loans, credit cards, and mortgages. When taxpayers fail to meet their tax obligations, the Internal Revenue Service (IRS) may impose a federal tax lien as a legal claim against their assets. In this blog post, we will explore the consequences, and discuss steps taxpayers can take when a legal claim is made against their assets.
The difference between Lien and Levy
People often use lien and levy interchangeably. However, there is one key difference that separates both. While a lien serves to safeguard the government’s interest in your property in case of unpaid debt, a levy goes a step further by physically seizing and selling the property to satisfy the outstanding tax debt. Failure to pay or establish arrangements for settling your tax debt means inviting trouble upon yourself. As a result, it forces the IRS’s hand on levying any asset in which you hold ownership or interest.
How can a Federal Tax Lien tarnish your reputation?
This lien serves as a way for the government to secure its interest in the taxpayer’s assets until the tax debt is satisfied. The IRS typically files a Notice of Federal Tax Lien to inform creditors and the public about the government’s claim. Therefore, you are restricted from selling or renting out your assets while the claim is in process.
As the title suggests, Federal Tax Liens have a considerable impact on taxpayers. It is more than about assets only. The claim leaves a big hole in your profile that is hard to erase! Let’s find out why it is necessary to avoid federal tax liens claims.
Your credit score takes a hit
As we are growing up, we are constantly told how important it is to maintain a high credit score. It helps you build assets, buy real estate, and even pay for college! One of the most immediate and severe consequences of a federal tax lien is its impact on the taxpayer’s credit score. A tax lien lowers the credit score, making it difficult to secure loans or credit cards in the future. Moreover, you will face challenges even when financing a car.
Obtaining secure credit lines will no longer be the same
With a low credit score, obtaining credit becomes a stressful battle. Lenders tend not to do business with individuals involved in tax liens claims. If by some miracle someone agrees, you will have to pay higher interest rates than usual. Hence, the same houses are going to cost you more with lower resale value.
Property Seizure Risk
While a federal tax lien is not a seizure of property itself, it establishes the government’s legal claim on the taxpayer’s assets. If the tax debt remains unresolved, the IRS may move forward with the levy. Which is potentially a financial suicide.
Impact on Business Operations
Things would be different from now on. Once you are handed a federal tax lien, it will impact day-to-day operations. Regular business activities would become a lot more challenging. Also, the IRS examines and analyzes your business activities with much more scrutiny. Hence, taking away your breathing room.
Even bankruptcy doesn’t get you off the hook
If you file for bankruptcy, your tax debt and lien may continue even after the bankruptcy. This means that the IRS still has the right to collect your tax debts and go after your personal assets.
To summarize, have a look at the table below.
Aspect |
Details |
Assets |
A lien includes all current assets e.g. property, securities, and vehicles |
Credit |
Filing a Notice of Federal Tax Lien by the IRS may restrict your ability to obtain credit |
Business |
The lien applies to all business property, including rights to business property such as accounts receivable. |
Bankruptcy |
Even in the event of bankruptcy, tax debt may persist after the bankruptcy proceedings. |
How can a Federal Tax Lien tarnish your reputation?
Tax debt does not go away on its own. It can decrease or delay but you are still liable to pay the tax obligations. Let’s shed some light on possible routes you can take.
Settle the score by paying tax debt
The best answer is to pay your taxes. Come to an agreement with the federal tax collecting body. However, if you are unable to do so, clear communication is your next resort.
Hire an expert to communicate your interests with the IRS
Paying your debt in installments is the most viable plan. When conditions are in the best interest of both the government and the taxpayer, a solution for a lien does exist. The IR’s motive is not to crush you under debt. Hence, with effective communication, you can come to an agreement that will take the target off your back. You can seek help from Lifeback Tax Relief to finalize the terms most suitable for you. Our tax consultants will ensure you get a favorable deal.
“Withdrawal” is a lifesaver
A withdrawal removes the public notice of the lien demonstrating that the IRS is no longer pursuing your assets. However, you are still liable for the amount due.
Offer in Compromise (OIC) or Currently Not Collectible (CNC)
Taxpayers facing financial hardship may qualify for various tax resolution options, such as an OIC or CNC status. These programs allow eligible individuals to settle their debt for a reduced amount or temporarily delay collection efforts.
Rebuilding credit is crucial
After resolving the tax lien claim, you should focus on rebuilding credit. It will help you get back on track and do business as usual. Plus, you will be eligible to get loans or finance cars once again! We do understand it is a tough road but solutions do exist. All you need to do is get an expert by your side. Tax matters are complex and any errors can cause rejection in application. Lifeback Tax Relief is renowned for expert services with 25+ years of experience. with us, you can rest assured, that you are in safe hands!
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Federal Tax Liens,Lifeback Tax,OIC,Taxpayers
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