Income tax liens
Falling behind on federal income tax is a very serious matter. In fact falling behind on any kind of tax be it federal, personal or business, signifies a dire financial situation. Tax payments is something that cannot reflect on your credit report till the time a delinquent status and/or a lien has been filed against you.
There are several reasons why you should make payment of your overdue taxes your top priority. The IRS can affect many facets of your life and the first thing they can do is file a lien against a property that you own so they can levy it if necessary.
Surprisingly, many people tend to ignore taxation defaults while concentrating more on the money that they owe on their credit cards, home and a car. Other creditors may give you problems and will for the money that you owe them. But any money that you owe taxes to the IRS is much much more serious. They can take away many of your things including a home, your car, your bank account balance, your insurance cash value just to recover the debt. So paying the IRS off should be your first priority.
Even if you pay off an outstanding tax obligation, the law allows it to remain on your credit report for the period of seven years more from the time that it was paid off. An unpaid tax lien can stay on your report indefinitely.
But the most serious aspect is that the IRS has the right to put a lien against something you own and take it away to recover its debt.
A lien represents the security for tax debt and the action used to seize your property in order to partially or fully satisfied the debt is called a levy. If there is an IRS lien being reported on your credit report it means that some of your property has already been adjudged for recovery of the debt. In many cases this is mostly your home as it is a most valuable asset and liable to give the maximum recovery for the tax debt. In this case the property is automatically encumbered and you cannot even sell your home until the IRS is paid. You cannot refinance or get a home equity loan to pay the IRS. In such a situation, the IRS tax debt becomes only second in priority to the payment on your current mortgage. In some circumstances, although rare, the IRS can go as far as to force you to sell your home to pay it.
As already mentioned, the IRS can put a lien on and access many of your assets which includes bank accounts, income, cash value of life insurance, real estate, vehicles, money owed to you by others, inheritance, proceeds from lawsuits, Social Security benefits and even retirement accounts. If you owe the IRS for business taxes, it will conceivably hamper your chances of future income by seizing your business bank accounts and businesses assets. You are also not liable for protection by your state laws. The IRS transcends those laws and there virtually no protection from the IRS.
Once again clear communication may help you in this situation. As with other kind of debts and creditors, you may be able to enter into installment arrangement to get your taxes paid off. This will not be easy. The IRS is strict when it comes to payment of taxes. And just like other collection accounts you should have a plan. Small token payments may only confuse things for you and the IRS. Take the advice of a professional attorney in order to come up with something tangible and workable. Don’t sign anything just because the IRS or the representative asked you to or because you think you’re doing something that is going to help your situation. Start by getting a copy of the publication put out by the IRS called “Taxpayer Bill of Rights”. But if you have doubts about how to manage the obligation to the IRS without realistically putting your family’s financial security in jeopardy, contact a attorney or accountant immediately. Usually the money spent on professional advice will be well worth it.
A formal method of submitting a settlement offer to the IRS is called an “offer in compromise”, OIC. Because an OIC is quite tedious and requires complete and accurate and truthful disclosure about several aspects of your financial life, it is a serious undertaking. Therefore it is best to hire an accountant or attorney who has lots of experience in the area.
However, the cost of the accountant or the attorney can be prohibitive. Especially if you all looking for good expert advice to deal with a serious matter like that of the IRS. Make sure you know and understand the fee schedule before you hire him or her. If using a professional accountant or lawyer seems too expensive keep in mind that it may cost you more in interest, fees and penalties if you don’t hire someone qualified to handle the IRS matter.