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A federal tax lien is a government document that can claim an individual’s property after he or she fails to pay a tax debt. This lien, or legal claim, gives the government access to the taxpayer’s entire estate, including real estate, personal property, and certain financial assets. The Internal Service Revenue (IRS) first assesses the taxpayer’s liability through a thorough audit of his or her financial books. Once the assessment has been made, the IRS usually gives a Notice and Demand for Payment, which lists down how much is owed to the government. If the taxpayer refuses or neglects to fully pay the debt in time, the IRS files a public document, known as the Notice of the Federal Tax Lien, which alerts the public that the government now controls the individual’s assets. If a property is sold while a lien is in effect, majority of the proceeds will go to the IRS before the taxpayer.
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Since tax liens are public records, these are included in an individual’s credit report and can affect the outcome of any bank loan or request. The good news is that avoiding these legal claims are generally a matter of foresight. The most recommended method would be, of course, to pay one’s taxes in full. However, if the taxpayer is undergoing financial challenges that would prevent him from paying his taxes in full, the taxpayer can set up an installment agreement with the IRS. These can either be a guaranteed or a streamlined installment agreement. The former requires an outstanding balance of $10,000 or less, while the latter would require a balance of $25,000 or less. If the balance exceeds $25,000, it is recommended that the taxpayer pays the balance to set a streamlined installment agreement.
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Tax problems such as these can be avoided with the services of a trusted tax representation firm. It is about thinking long-term and understanding the cost-effectiveness of such a service. After all, a federal tax lien adversely impacts the credit of taxpayers, resulting in a bad credit score and less opportunities for new credit or refinancing.
Wall and Associates is committed to helping its clients nationwide settle their tax issues and attain the best possible outcomes. Learn more about its services here.
