Failing to pay your property taxes, can motivate the IRS to put a tax lien against your property. The lien is a legal claim that allows the IRS to collect on your debt. When you sell the property, a portion of the proceeds will go straight to the government agency.
If you’ve been hit with a tax lien, it’s important to understand what this means and how to proceed.
“Tax liens are part of a taxpayer’s public record, and therefore may impact credit scores,” says Randolph Law Firm, P.C. For homeowners, this is clearly not a great outcome as creditworthiness is required by lenders for home mortgages and any other type of loan so avoiding it is the best action going forward.
How should you proceed if you get a tax lien? First, you might want to consider hiring a lawyer who specializes in tax issues and also include your accountant who knows your financial position. Other steps to take include:
Contact the IRS Immediately
Ignoring the IRS will not make it go away it will only make the problem worse. A federal tax lien has serious ramifications, for loan qualification. Call the number on the back of the tax bill you received from the IRS, or have your lawyer call the number for you.
A lien should be treated with due care and attention, so it’s advisable to communicate directly or indirectly (via your professional representatives) with the IRS to explore your options as soon as possible.
Take Steps to Avoid a Recorded Lien
Initially, tax liens do not appear on the public record. At first, the matter is considered a private affair. You will have 30 days from the receipt of the lien notice to pay in full or make arrangements to pay your taxes. If you fail to take these steps, the IRS can file a tax lien notice.
A tax lien notice is a public document, and it is filed with your local courthouse or the secretary of state’s office. Once this happens, the lien will become public knowledge and it will likely show up on your credit report.
How can a tax lien on the public record impact your life?
- Your credit score can drop by as much as 100 points
- Creditors will be less likely to extend you any credit
- You may have trouble getting a job
- Your insurance premiums or credit card interest rates may increase
All of these outcomes can be prevented by paying your tax debt in full or coming to an arrangement with regular payments. You want to reach a satisfactory outcome before it’s too late.
Appeal the Lien, or Make Payment Arrangements
What happens if the lien is an error? Like many other government agencies, the IRS is overworked and understaffed. It’s entirely possible that the IRS make a mistake.
Have a tax attorney or a CPA go over your paperwork with a fine-tooth comb. If the IRS made an error, even if it’s on a technicality, you have the right to appeal the decision.
Once you receive notice of the lien, you have 30 days to file an appeal with the IRS Appeals Office.
Have your tax representative guide you through the appeals process. If you have no grounds to appeal the decision, you should consider paying the debt in full if you have the means.
This is the fastest way to get rid of a tax lien and remove it from your credit report. If you don’t have enough cash, you might consider selling assets or even tapping into your retirement fund.
If paying in full isn’t an option, you may be able to arrange a payment plan or an offer in compromise.
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