It's no wonder that tax relief specialists thrive in such great numbers - taxes are seriously complicated and repercussions of failing to pay taxes are significant. Once you get stuck with a tax lien, you feel trapped. So what can you do to remove a tax lien?
A tax lien is a legal way for the IRS to get an individual to pay tax debt that is owed to them. A tax lien can be placed on either your personal or real property when you fail to pay taxes within a given period of time. For example, an IRS tax lien can attach to your possessions (house, car, boat) and to any property or items that you may acquire even after the IRS files a lien. The lien is usually filed at a local County Clerk’s office and is a public document. It can also be filed with the Secretary of State.
The IRS gains legal claim on property until the lienor can pay the tax that is owed, the idea being to encourage the lienor to pay the tax. If the IRS has placed a tax lien on you, it will seriously affect your credit rating and will either render sale of personal property difficult or impossible. Removing a tax lien should be a huge priority for you, as you're no doubt well aware.
What are the options?
First, time is of the essence. You have 30 days to respond to a tax lien after receiving a “Final Notice of Intent to Levy” so respond swiftly.
- Wait it out and let the tax lien expire. For several reasons, this is not the best option. There is a set time period in which a tax lien can be acted upon. For tax liens more recent than November 6, 1990, the tax lien becomes unenforceable after 10 years. For all liens prior to November 6, 1990, the tax lien becomes unenforceable after six years. If you have had a tax lien for a considerable amount of time and the IRS hasn't seen fit to act upon it, perhaps just waiting for the period to expire is an option you wish to consider. If the period expires with no extension, then the possibility of an action on the tax lien has been removed. This option certainly requires the least amount of effort, but you will have to live with the possibility that the tax lien will be extended before it expires. In addition, the tax lien can show on your credit report forever if you don't pay anything to remove it.
Why might the IRS decide to let the period expire without hounding you any further or acting upon the tax lien? You might not realize it but it costs the IRS money every extra step of the way when they are trying to get hold of taxes that are owed. The IRS has made a science of figuring out whether this extra effort is worth the money and if they can ultimately expect to collect. Hence, the hesitation - the IRS may determine that it's not in their best interest to proceed in collecting on a tax lien. While this is good for you, it does nothing to remove the tax lien from your credit report. It remainsl in effect, whether the IRS acts upon it or not.
- Pay the tax that is due. If you choose this option, your tax lien should be removed within 30 days. It can be removed from your credit report as well. Upon removal of the tax lien, you may receive proof that the lien has been removed in the form of a certificate copy. Ask for a copy of this documentation if it is not sent automatically.
- Proving financial hardship. Consider proving financial hardship. This means you will need to prove to the IRS that levying money in your bank account will cause more harm than good and that it may cause you to never be able to pay them what you owe them. You must realize that the IRS wants to get the tax money you owe, so if you declare that you are, in their terms, “Currently Not Collectible”, you can buy some time and consult with a tax professional to help you create a realistic tax payback plan.
- Strike a repayment deal. In IRS terms, this is called an Offer in Compromise (OIC). Since paying back taxes can be easier said than done, consider removing your tax lien by striking a repayment deal with the IRS. Essentially, you offer an amount that is less than the full tax amount you owe, and the IRS can decide if they agree to accept the offer and remove the tax lien. If the Offer is well calculated, you will be able to remove your tax lien by paying a smaller amount than what you owe. You must also promise to pay your future taxes on schedule for an extended period of time. You'll want to hire a tax lawyer or a financial professional to help you in this effort because the OIC has very specific forms and guidelines that must be met. However - removing a tax lien using this strategy is not as easy as some make it sound. If you're successful, then both sides are happy, since the IRS has gained slightly more than what they ultimately expected and you have removed the tax lien.
- Pay in installments. The IRS may allow you to pay in installments by coming to an agreement with you on an affordable monthly payment plan. This is the most common way people pay their delinquent taxes. You basically set up a payment plan that the IRS must agree to. The monthly amount that you will agree to pay is based on your income, particular monthly expenses, and the overall amount that you owe. The IRS may limit the number of months you are allowed to pay in installments and you must be certain that you do not miss a payment during any of those months. If you do, your account will immediately go into default and the agreement you had will be revoked.
- Refinance or sell your real or other property. If it becomes necessary for you to refinance or sell your real or other property, you can remove your tax lien by paying your due tax completely and pursuing a way to get the tax lien lifted for the short period of time it takes to refinance or sell. This is just a temporary removal of your tax lien. For this option, it would also be best to seek the help of tax relief professionals, whom you can find online or through a phone book. Check out Taxes and Tax Lien Help or do a Google search for "tax lien removal." I definitely recommend getting an IRS tax attorney or accountant; you need help at this point.
State Tax Liens
Remember that tax liens can be filed by a state or county as well as by the federal IRS. Tax liens are a way of collecting back taxes owed by an individual, a corporation, a partnership or any entity who fails to pay the taxes required by state law. For example, if you as an individual do not pay your state or county taxes, a tax lien can be placed on your home or property by state or county officials. If you owe the state or county money and you sell your home, the state tax lien will need to be paid off with the money from that sale. Once you pay back the money owed to the state or county, the lien on the property will be removed and you will have a clean title to your home.
Since the laws, procedures and paperwork used to file and pay off a lien are specific to each state, and you will most likely follow the advice given above to get out of or resolve the tax lien, it is best to consult with a state tax professional who knows the laws within your own state.
Not everyone will be satisfied with just sitting and waiting for the tax lien to expire. Think hard about it and decide what works best for you. Paying the tax lien by refinancing, selling some property or working out an installment or repayment deal would be the best options to protect your credit rating. Either way, act quickly and seek out some professional tax payment advice.