Feeling overwhelmed is common if you have outstanding taxes owed to the IRS. Unsettled tax obligations can lead to significant repercussions. Various strategies may be implemented by tax authorities to ensure the collection of the debt you owe. Among the more severe consequences you could encounter is the imposition of a tax lien on your property. Essentially, a tax lien is a public declaration initiated by the IRS or another relevant agency against your property, serving as notification to others that you have a financial obligation to the lienholder.

What Is a Federal Tax Lien?

A tax lien is a public announcement made by the IRS, signaling the agency’s legal entitlement to a taxpayer’s property. Following the IRS’s identification of a taxpayer’s outstanding tax obligations, a thorough examination of the taxpayer’s financial details and tax payment track record is conducted to ascertain the precise amount owed. Essentially, a federal tax lien serves as formal notification to creditors that the government holds a legal right to the taxpayer’s property.

The taxpayer will be informed of their debt and will be issued a Notice and Demand for Payment. Then, once the agency deems it necessary, the IRS will initiate the pursuit of a tax lien. The Notice provides a comprehensive breakdown of the owed amount, accrued interest, and penalties applied to the balance. Additionally, it specifies a due date for repayment. Failure to respond or repay the stated amount by this date prompts the IRS to commence collection efforts, with a ten-year statute of limitations during which such efforts may be undertaken.

Possible Ramifications of a Federal Tax Lien

There are many potential effects of the IRS filing a tax lien against you. For one, tax liens can cause your credit score to drop dramatically, making it difficult for you to obtain a home or any other financing. It is also important to note that tax liens apply to all of your property, including your home and any other tangible assets that a creditor may be able to seize. Any businesses that you own could also be susceptible to the impact of a lien, posing a potential risk to your business property and assets, including accounts receivable.

Bankruptcy likely won’t be able to erase the lien. You will need to repay your tax debt (or reach an alternate resolution) to have it removed. 

Removing a Federal Tax Lien

The quickest and most straightforward method to release yourself from a federal tax lien is to settle your entire tax debt with the IRS. Once the payment is made, the IRS will lift the lien within 30 days. However, it goes without saying that making a single lump sum payment might be financially challenging, especially if your owed amount is significant. A seasoned tax attorney in San Diego can assist you in examining alternatives to alleviate the repercussions of a federal tax lien or work toward its removal from your property.

In specific instances, certain properties may be eligible for discharge. Your legal representative can review the IRS’ Internal Revenue manual to ascertain if any of your assets meet the criteria for property discharge and exemption from the lien. Another alternative is subordination, which doesn’t eliminate the lien but permits other creditors to take precedence over it. This option can be beneficial if you’re looking to purchase a house or secure financing for other purposes.

In certain circumstances, it’s feasible to meet the criteria for the withdrawal of the lien. Demonstrating to the IRS that there is no rivalry with other creditors for your property may lead to the removal of the lien from public records. Once your tax liability is fulfilled, and the lien is released, it’s essential to maintain compliance for three consecutive tax years, encompassing all individual and business returns. Additionally, staying current on federal tax deposits and estimated tax payments is necessary to facilitate the withdrawal of the federal tax lien.

How a Tax Attorney Can Help

Although the IRS provides options that can help a taxpayer avoid or overcome a federal tax lien, the paperwork and steps required for these options can be incredibly complex. Considering how much time, effort, and know-how is required to settle unpaid tax issues with the IRS, it’s easy to become lost without the guidance of a professional.

An experienced tax attorney in San Diego can help you determine the best available options for avoiding or removing a federal tax lien from the IRS. Some of these options include:

  • Appealing the IRS’s decision. It is possible that the IRS has made an error in their decision to file a federal tax lien against you. If you believe this to be the case, your attorney can assist with the process of appealing this decision.
  • Seeking an Offer in Compromise. In certain circumstances, a taxpayer may be eligible for an Offer in Compromise, enabling them to resolve their tax debt for less than the total owed. However, this option is unavailable if you are presently undergoing an IRS audit or in the midst of bankruptcy proceedings. Seeking professional assistance from a tax attorney is crucial when pursuing an Offer in Compromise.
  • Negotiating a payment arrangement with the IRS. With the assistance of your tax attorney, you can demonstrate to the IRS your capacity to gradually repay your tax debt. This may result in the removal of the federal tax lien from public records during the repayment period. While your tax debt will still accumulate interest, this approach offers flexibility as an alternative to a lump sum payment that may be financially challenging for you.

A federal tax lien has the potential to further complicate an already challenging financial situation, whether you’re an individual or a business owner. The assistance of the right attorney can streamline the process of removing or withdrawing your lien. Although it is possible to overcome a federal tax lien, doing so effectively will require guidance and legal counsel.

Delia Tax Attorneys are very experienced and have handled countless complicated tax cases for clients facing federal tax liens. If you are currently facing a federal tax lien and require legal assistance, Delia Law can help. Contact our firm today and schedule a case evaluation with us so we can get to work on your federal lien case.

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