IRS Tax Lien

What is a Tax Lien?

Unfortunately, many taxpayers are unable to pay their taxes on time, as an IRS tax lien lawyer in Hanover, MD knows all too well.  If the Internal Revenue Service (“IRS”) or a state taxing authority assesses a tax – whether income tax, sales tax, employment tax, or otherwise – and then makes a notice and demand, a lien will arise after the tax or associated penalties and interest are not paid within a certain period of time.  Many individuals and businesses with unpaid taxes do not realize that this inchoate or “invisible” tax lien even exists.  A tax lien, even when inchoate, gives the IRS and other state taxing authorities the ability to take legal actions against taxpayers in order to collect liabilities that are due – even prior to the filing of a Notice of Tax Lien.  Assuming other required notices are issued, the IRS could levy payments, garnish wages, and take other collection actions even prior to the filing of a Notice of Federal Tax Lien.

Many taxpayers only begin to understand the gravity of the situation once the associated public filing, or notice of tax lien, is made public and creditors become aware of the situation.  The lawyers at Crepeau Mourges understand the potentially critical nature of the situation and frequently work with taxpayers to avoid the negative consequences associated with IRS tax liens, state tax liens, and other public filings.

Once required notices and appeals have been given to the taxpayer, the IRS and other taxing authorities may move quickly to file a Notice of Federal Tax Lien or state counterpart.  This is particularly true if the IRS is aware of potential business problems or solvency issues of a taxpayer.  The purpose of a Notice of Federal Tax Lien is to put the public on notice of the claim of the IRS to the taxpayer/debtor’s property and to retain their priority with respect to other creditors.  (In some cases, the IRS and state taxing authorities will be competing for priority with respect to a delinquent taxpayer’s assets.)  While many statutory provisions give taxing authorities more leverage when it comes to collecting on debts owed vis-à-vis other creditors, the filing of a Notice of Federal Tax Lien is an essential tool to maintain the taxing authorities’ ability to seek collection should a taxpayer attempt to sell or transfer real property, a business, or other assets.  Where a taxpayer owes debts to other unsecured creditors (e.g., personal loans and credit cards), this public filing ensures that the IRS or other taxing authority is paid before those creditors.

What Effect Does a Tax Lien Have and How Can I Prevent It?

A tax lien, particularly the filing of a public notice (i.e., Notice of Federal Tax Lien), can have a significant impact on a taxpayer and their livelihood.  First, it puts the world on notice of the tax debt.  Many taxpayers will receive solicitations from tax professionals and other seeking to assist – some of these fly-by-night services do not have the best interests of taxpayers in mind.  Worse yet, the filing of a tax lien may put other creditors on notice of potential issues.  This could trigger a default of a business agreement, business loan, or other obligations.  Credit reporting agencies will typically discover these filings within days.  This will have a negative effect on a taxpayer’s credit rating and will impact their ability to obtain future credit.  And, for those that are attempting to sell a house or other asset, the existence of a Notice of Federal Tax Lien can potentially scare off a buyer, require the involvement of IRS tax lien lawyers in Hanover, MD, and hamper the ability to engage in such a transaction.  Even if the transaction can go through, in most cases, the tax lien will need to be paid off before the seller receives any proceeds.  If this is not done, the buyer of the property can potentially take the property subject to the prior tax lien.  If that happens, there can be even greater problems for both the buyer and seller.

Fortunately, there are a number of ways that a tax lien or filing of a Notice of Federal Tax Lien can be avoided.  The easiest way is to ensure compliance with applicable tax filing and payment obligations to prevent any overdue liability in the first place.  Even if compliance issues exist, there is frequently some time between the creation of the liability and the filing of a Notice of Tax Lien.  With proper advice and planning, that time can be used to rectify the situation, either by addressing prior tax compliance issues or setting in motion a plan to make payments.  While not guaranteed, proactive resolution of these issues can be helpful in convincing the taxing authorities not to file a Notice of Tax Lien.  If a taxpayer does not agree with the tax owed or cannot otherwise afford to pay in a short period of time, other proactive measures can be taken to mitigate the chance that a Notice of Federal Tax Lien will be filed or maintained for a significant period of time.  For instance, taxpayers can typically challenge proposed assessments before they are finalized through administrative mechanisms.  Even after assessed, taxpayers generally can seek a further review through options such as an audit reconsideration, Offer in Compromise, Collection Due Process hearing, Collection Appeals Request, and through similar state procedures.  The professionals at Crepeau Mourges have significant experience in tax liens and the many options available to either prevent their filing or minimize their impact.

If a Tax Lien Has Already Been Filed, What Can I Do?

Depending upon the situation, there are many options available to minimize the continuing impact of a tax lien and associated notices.  Perhaps the easiest way to negate a tax lien is to pay the balance in full.  If a taxpayer has the means and there is no question as to the validity of the liability, this may be the best option.  Where that is not possible, taxpayers can engage in proactive discussions with the IRS and state taxing authorities to address the tax liabilities.  While not guaranteed, the successful negotiation of an Offer in Compromise or installment agreement, coupled with an explanation of how the lien filing could diminish the likelihood of the taxpayer’s payment of the amount owed, can result in the non-filing or release of a tax lien.

For those that are attempting to sell property and cannot negotiate a release of the Notice of Federal Tax Lien through a payment arrangement, other options exist.  In some instances, a “discharge” of the Notice of Federal Tax Lien can be obtained.  In this process, the IRS removes the lien from certain property in order to accommodate a sale to a third party.  Although this process helps many affected taxpayers, it is not a given; there is a detailed application that must be completed, and taxpayers must explain the basis for their discharge request.  The chances for success are increased if one understands the criteria for obtaining a release.  In a similar vein, some taxpayers can obtain a “subordination” of the interest of the IRS or taxing authority in order to allow for the refinancing of a loan or mortgage.  This can be helpful to taxpayers that may need to access credit to make future mortgage and tax payments more manageable.  However, as with the discharge procedures, a subordination is not automatic and will only be granted if proper grounds and substantiation for the request are provided to the IRS.  Again, the assistance of counsel is usually recommended.

Finally, for those taxpayers that are not selling assets and/or cannot negotiate a collection resolution prior to the filing of a Notice of Federal Tax Lien, post-filing options still exist and can help to minimize the impact of a tax lien.  Taxpayers with the inability to pay and/or those that can document certain economic hardship may be able to have a lien released upon finalizing an installment agreement or Offer in Compromise.  And for those that do not wish to carry the “scarlet letter” of this public notice indefinitely, taxpayers demonstrating that a lien has been satisfied and that they are in current compliance may be able to obtain a withdrawal of the tax lien.  This process effectively removes the filing from the records and future creditors will be unaware of any prior tax issues.  For many taxpayers, a lien withdrawal is a necessary step to getting back on their feet and moving forward.

The importance of a comprehensive knowledge of tax liens and procedural rights and safeguards cannot be understated.  The lawyers at Crepeau Mourges will advocate for your rights and use available options to resolve your tax liens.

How Can a Lawyer Familiar with Tax Liens Help You

There are typically more than a few issues involved when one is faced with a tax lien.  Very rarely is it simply a matter of delinquent payment.  In most cases, the liability will in whole or in part relate to penalties, adjustments in an audit, or items beyond the comprehension of the taxpayer.  There are other situations where the taxpayer is simply overwhelmed and does not even understand the amount owed, does not know the years to which the liabilities relate (and why there is a liability), and may blame the IRS, taxing authority, or other actors for the existence of the liability.  Whatever the reason, tax liens almost never go away on their own.  As with many other areas in tax, proper advice can help to minimize the financial consequences of the problems and will avoid potentially fatal pitfalls.

The attorney-CPAs at Crepeau Mourges are knowledgeable about the procedural and technical issues often associated with these matters.  In our vast experience assisting clients, we have used the many tools to resolve complex problems.  Whether the situation involves years of unfiled tax returns, an erroneous assessment of tax and penalties, an inability to pay caused by change in circumstance and/or economic hardship, any many others, we have seen it before.  We can help you to understand the situation.  We will put a plan in motion to minimize and resolve the situation.  We will help you to get back on your feet and to get the IRS or other taxing authorities out of your life.  Call an IRS tax lien lawyer in Hanover, MD from Crepeau Mourges today to schedule a no-cost consultation and to learn how we can help you resolve issues relating to tax liens.