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Friday, April 12, 2013

Understanding IRS tax liens

Tax liens are issued by the U.S. Internal Revenue Service
Liens authorize legal right to property if taxes go upaid

By Ashely Wilson

An IRS tax lien is a deeply frightening prospect. The best way to deal with this fear is to understand what liens are, when they are applied, and how you can avoid them.

A federal tax lien is an announcement, the Notice of Federal Tax Lien, that the IRS files with a county government to inform the public of its right to a taxpayer's property. It is normally filed in the county where the debtor lives or operates a business. A lien is always a matter of public record.

A lien attaches to the property of a taxpayer who owes the IRS an unpaid debt. All assets owned by the taxpayer at the time of filing and all assets acquired during the lien are covered by it. If the taxpayer sells any assets while the lien is in effect, then the IRS is paid first. A lien is not the same thing as a levy. A levy is the direct, forcible collection of tax debts from a paycheck or a bank account. A levy may also involve the IRS directly seizing the real and personal property of the debtor. An IRS tax lien merely secures the government's interest in a taxpayer's property until they make good on their debts.

The best way to avoid a lien is to pay your taxes on time and in full. The second best way is to not ignore correspondence from the IRS about unpaid taxes and make arrangements to pay your debts. It is often simple to avoid a lien even if you owe a large tax debt that you cannot discharge at once. Either a streamlined or a guaranteed installment agreement may satisfy the IRS.

A guaranteed installment agreement requires that the outstanding balance be $10,000 or less. A streamlined installment agreement can be applied to debts of up to $25,000. When debts exceed $25,000, it is still possible to qualify for an installment plan by paying the debt down to $25,000 or less. A lien is only filed after the IRS assesses a taxpayer's debts, sends a Notice and Demand for Payment and payment is not forthcoming.

The IRS removes a lien when it is found to have been filed in error, when debts are fully paid, when it can no longer be legally enforced due to the statute of limitations or when a compromise has been successfully negotiated. A removed lien may remain on taxpayer's credit report for up to 10 years, or it may be wiped at once.While this is not a solicitation for legal services, it is always a good idea to contact a tax expert if you are faced with an IRS tax lien. "Not a solicitation for legal services."

About the author: Follow Ashely on Twitter @ashelymarie1985 to see what else she has to say about financial planning.

Image license: US-PDGov