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Key Facts About Tax Liens That Every Taxpayer Should Know

  • February 2, 2020

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Facts About Tax Liens

Paying your taxes on time is the best thing to do if you want to stay out of trouble. However, things may sometimes get out of hand due to loss of job or medical emergency. In such situations, you can be utterly helpless and may miss on your tax dues even if you have no intention of doing so. Unfortunately, you can face a tax lien against your property in this case.

Essentially, a tax lien is a claim that the IRS makes on your property when you fail to pay your tax liability. The tax lien is serious, even though it does not mean that the IRS will seize your property. If you fail to resolve the lien, you can face a tax levy that puts your property at the risk of a seizure. Considering the gravity of the situation, you need to understand how you can deal with it. Here are some basic facts you should know.

Fact #1: It can damage your creditworthiness

Though tax liens may not appear on your credit reports, they can still be harmful to your creditworthiness. This is because the IRS will file a public notice telling creditors that the government holds a right on your property. The damage goes to the extent that the creditors take it as a black mark when it comes to lending. Obviously, they may not be willing to give you a loan in these circumstances. This is something that you cannot risk because you will get into deeper trouble with a poor credit positioning in addition to the burden of the lien.

Related: Easy Tips To Reduce Your Tax Burden And Increase Refund

Fact #2: It can impact the sale and refinance as well

Another serious concern about tax liens is that it can impact the sale and refinance of the property as well. In case you plan to sell the place, a lien can ruin your chances because it can surface during title searches. In fact, you will have to use up your equity in the property to clear the tax bill in order to close the case for good. You will end up getting lesser value than you expect when you sell or refinance the place.

Fact #3: It has serious implications

The fact that tax liens have serious implications is known to everyone. But do you really know what these implications are?  You may get into a big fix of the IRS funnels you into its automated collection system. You will probably end up spending hours on hold with their call center or may have to bear the inconvenience of in-person visits if your case is assigned to a revenue officer. Even worse, you may get a notice of a tax levy if you fail to address the lien.

Fact #4: Seek professional advice as soon as you can

Considering the perils of a tax lien, you should take action as soon as you can. The best approach would be to seek advice from tax attorneys that handle the release of tax liens and levy's as they know exactly what to do. They will have a good look at your case and suggest the best possible alternative to resolve the issue speedily and prevent further implications like a levy. Ideally, you should pay off the debt in full, though there are other alternatives you can explore.

Fact #5: Know the alternatives

You will definitely have to pay off your tax bill if you want to get rid of the lien and prevent its dire consequences.  Cooperating with the authorities is the best thing to do. You can explore the option of an IRS payment plan if you cannot pay off the liability immediately. It could be an installment agreement that is easy to repay and protects you from the burden of interest and penalties as well. An offer in compromise is another alternative, though you will have to onboard a professional attorney to handle the negotiation with the IRS. If you agree with the decision of the lien, you can even fight it out by filing an appeal. In case there is no other way to clear the tax debt, bankruptcy is a last resort.

Now that you understand the consequences and implications of a tax lien, you can deal with it in a better way. Though you must make all the conscious efforts to avoid it in the first place, paying off your tax debt is the only way left if you still face it. And the sooner you do it, the better it will be for you!