In this article, we will explore the topic of tax liens and how they can affect individuals and businesses. A tax lien is a type of legal claim that the government places on the assets of individuals or entities who fail to pay their taxes. Let’s dive deeper into this subject and understand the implications.
What is a Tax Lien?
A tax lien is a special type of lien filed by the government against the assets of those who do not fulfill their tax obligations. When someone refuses to pay their taxes, the government can impose a lien on their assets as a means to secure payment. If the individual or entity still fails to pay their taxes even after the lien is in place, the government has the authority to seize and sell the assets to recover the unpaid amount.
For example, let’s say you are a member of a limited liability company (LLC) that has neglected to pay its business taxes on time. The Internal Revenue Service (IRS) may file a federal tax lien against the LLC’s business property, which can include physical assets like equipment and inventory, as well as intangible properties like copyrights, trademarks, and patents.
It’s important to note that along with federal taxes, businesses must also pay state and local taxes. If the LLC fails to pay taxes at the state and local level, a state or local government agency may issue a state tax lien against the LLC’s assets.
Understanding Time Constraints
One significant difference between state tax liens and federal or IRS tax liens is the time available for government agencies to collect on a tax debt. The IRS has up to ten years to collect unpaid federal income taxes, while state agencies typically have up to three years for unpaid state income taxes. However, it’s essential to consider that these time limits may vary depending on specific circumstances and the laws of each state.
For example, some states do not enforce a three-year statute of limitations, and others may impose a longer or shorter time constraint. In certain situations, you may be able to suspend or reset the clock by declaring bankruptcy, entering into an installment agreement, or reaching a settlement with the IRS.
The Process of Tax Levy
If a tax lien is already attached to assets, and the individual or entity continues to ignore the government’s demand for tax payment, the agency can proceed with a tax levy. A tax levy is a legal procedure that allows the government to seize the assets identified in the lien documents. This process refers to the actual act of seizing the assets belonging to the individual or entity.
How to Respond to IRS’s Action
When faced with a federal tax lien, the safest and most effective way to have it completely removed is by paying off the tax debt in full. However, if that’s not possible, there are several alternatives that debtors can explore:
- Set up an installment payment plan agreement.
- Complete the application for an online payment agreement.
- Request a reduction in the amount owed through negotiation with the IRS.
- Check if the IRS has placed a notice of temporary delay on collection due to the debtor’s inability to pay.
Ignoring a tax lien notice from the IRS can lead to significant consequences. Unpaid tax liens can make it challenging to obtain loans or lines of credit, affecting activities like buying or selling a house.
Exploring Tax Settlement Options
There are various ways to attempt to settle a tax lien. Debtors can negotiate with the IRS to reduce the amount owed, set up an installment plan agreement, or request extensions based on specific circumstances such as military service, hardship, or situations beyond their control. Reviewing marital documents can also provide evidence that a spouse is responsible for the tax violations and failure to make payments.
These are just a few examples of the tax settlement options available, and it’s always advisable to consult a local taxation lawyer for expert advice tailored to your specific situation.
The Impact of Bankruptcy on Tax Liens
Bankruptcy is a legal process that can help individuals or entities reduce or eliminate certain debts. If a debtor files for bankruptcy successfully, parties they owe money to must halt their collection efforts. This means that if the IRS or a state government agency has placed a tax lien on a debtor’s property and the debtor declares bankruptcy, the agency is required to remove the tax lien.
However, after completing the bankruptcy process, a government agency may be able to impose a new lien on the debtor’s property. Filing for bankruptcy can provide temporary relief from the seizure of assets, but it’s crucial to navigate this complex process with the guidance of a taxation attorney to avoid potential pitfalls.
The IRS and Explaining Failure to Comply
The IRS expects all citizens to pay their taxes in full and on time. However, there may be circumstances where taxpayers can offer explanations for their failure to comply with a tax lien notice. Some acceptable reasons for non-compliance include already having paid the amount in full, seeking alternative collection methods like installment agreements, inability to pay due to specific circumstances, filing actions to discharge or withdraw the tax lien, notice procedure errors, or when a spouse is liable for the taxes.
Other Government Agencies and Tax Liens
The IRS is not the only government agency that can place a tax lien on a debtor’s property. Each state and county may assign local government agencies to impose tax liens for unpaid state and local taxes. Other types of tax liens can include child support and alimony liens, property tax liens, judgment liens, mechanic liens, and mortgage liens.
The Role of a Tax Attorney
Resolving tax lien issues often requires a deep understanding of both real estate and tax law. These complex matters involve various legal concepts that can be challenging to navigate without the assistance of a lawyer. Hiring a tax attorney who specializes in tax lien properties can provide numerous benefits, including negotiating with the IRS for a fair compromise, ensuring compliance with tax lien requirements, and exploring options for debt reduction or elimination. Additionally, a lawyer can help determine whether the seized property is exempt under state laws and guide you through the appeals process if necessary.
To recap, tax liens can have significant implications for individuals and businesses. Seeking legal advice from a taxation attorney can help navigate the complexities and find the best possible solutions for tax lien problems.
For more information on tax lien matters, visit Garrity Traina, where you can find expert guidance suited to your specific needs.