When you neglect or fail to pay a tax debt, a lien protects the government’s interest in your property. The lien arrives only after your liability has been assessed and you’ve been sent a notice, called a Notice and Demand for Payment, indicating how much you owe, which will be upwards of $5,000. The IRS (or other taxing authority) files a Notice of Federal Tax Lien as public record, alerting creditors that the government has legal right to your property. Whether you’ve been hit with a tax lien on your business or home, you must act fast to save from the damage to your credit report – your score could lower by 100 points. A tax lien is much like bankruptcy in that it will follow you for around a decade, or longer, depending on how you approach its resolution. Here’s what you need to know as a business or property owner to regain financial footing.
You have a few avenues to take that will relieve you of the lien, depending on the nature of your home ownership. The first and most straightforward option is to pay your debt in full; the lien will remain for 30 days after your payment is received.
Other options are at hand. You may be eligible for a Discharge of Property if you choose to sell your home as a resolution. Keep in mind, selling your property after receiving a tax lien is only wise if you have enough equity to cover the bill. Apply for a certificate here.
Ender the Fresh Start Initiative, you can apply for a withdrawal. This will remove the lien from public record and therefore out of competition with other creditors, but your tax payment remains due. Also, you must meet certain eligibility requirements. Under the withdrawal, you will convert into a Direct Debit installment agreement, which also has a set of prerequisites, such as oweing less than $50,000. This can take two to three months to have the lien removed, since you have to make 3 payments before filing. After it is paid in full and the withdrawal is approved, you must submit this information to all three credit bureaus.
Finally, you can agree to an Offer in Compromise (an agreement to pay back less than you owe) or subordination, whereby creditors take their debts before the IRS, and may make it easier to get a loan or mortgage.
If the state takes out a lien on your home, this is a bigger, more complicated problem. In some states, there have been taxpayers that lose their homes over a few hundred dollars in back county and city taxes. We recommend attending to these first, as the IRS is more forgiving and flexible.
A tax lien on your business can be federal, state, or local, filed when a business fails to pay debt. Tax liens are attached to all business property, including real estate, vehicles and accounts receivables. Once the taxing authority sends a demand for payment notice to the business, the authority can file a notice of tax lien if the business refuses to pay the debt within a certain time period. If the business settles the tax debt, the lien is usually removed within 30 days. A business also can receive a judgment lien as a result of a lawsuit, security interest liens, and mechanic’s liens. The path to removing a tax lien is much the same as a homeowner above, and is at the very least, a financial inconvenience to the operations of your business.
Generally, a lien will stay on your credit for 7 years after your debts are fully paid, and perhaps longer. It’s pertinent to assess your financial situation and decide which path is best for you. All applications require mailing in forms, meaning the solution will not be instant. Whether you pay your taxes in full, apply for a withdrawal, refinance and subordinate, or sell and apply for a discharge, your action should take course immediately after you receive the notice. Contact the number on the paperwork you receive and your trusted tax professional to resolve the lien STAT.
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