How to Pay off Your Federal or State Tax Liens or Debts
Guide to getting IRS tax debts and State tax liens paid off fast
Have you recently been notified that you have a Federal or a State tax lien filed against you?
It is not uncommon in this current economic environment that we are in to be saddled with a state or Federal tax lien or debt.
Many small businesses and entrepreneurs who struggled under the heavy regulatory burden of the Obama presidency…
…just could not keep up with their tax payments during the slow economy of the the Obama years.
So what to do now that the economy is booming under Trump?
…a tax lien is filed in order to force them to pay all the outstanding taxes.
A lien is a method by which the government claims an individual’s personal property (it can be the property or money) when they do not pay taxes.
When a tax lien is filed it becomes a public record easily accessible to anyone including the companies dealing with credit reporting.
This is sometimes misunderstood by the customers with tax liens that state tax authority and IRS have reported about the lien to the credit bureaus…
…which is not the case in reality.
It is the other way round wherein the credit bureaus themselves find out the tax liens and bankruptcies of individuals to include such reports on the consumer credit report.
Therefore it is extremely tough to escape such details from being included in the credit reports, and more often than not the person will be forced to pay the taxes to whomever they are owed.
Important Tax Lien Terms to Be Aware of:
Unpaid — This means that the tax lien that has been issued due to non payment of taxes is still unpaid and the debt is still uncleared.
Tax liens in the unpaid status are going to be there for a very long time on the credit reports.
Paid or Released — This state declares that the tax owed by the individual has been paid and therefore lien (government claim on property) issued has been released now.
Such Tax liens are usually going to be there on your credit reports for a period of 7 years from the date of payment of the lien.
Withdrawn — This is the status every individual with liens strives for.
It means that the public record of the lien has been withdrawn by the tax authorities and the credit report is free from any kind of tax lien reports on it.
How does a State or Federal Tax Lien Affect Me?
Assets: When lien is attached to all of your assets (be it vehicles, property, or securities) the assets that you buy in the future will also have a lien attached to them when acquired during the duration of the lien.
Credit: Once you are affected by IRS tax lien and a notice is filed the ability to get credit becomes limited.
Business: A lien is attached to all business property as well as the rights to such business property, including all receivable accounts.
Bankruptcy: Even if an individual files for bankruptcy, the lien and tax debt may continue after the bankruptcy too.
What Does the IRS Do If You Have Federal Tax Lien
…Puts all the balance that is due on the books (that is, assesses the liability);
Sends a bill to the person mentioning how much they owe (Notice and Demand for Payment);
It then files Notice of Federal Tax Lien, a public document, in order to the creditors about government’s rights over the person’s property.
How do I Get Rid of a Federal Tax Lien?
Pay the tax debt in full:
If a Notice of Federal Tax Lien is sent to an individual who has not paid taxes, it should never be ignored.
The more it is delayed on taking the appropriate steps, the harder it will be to take the rights steps towards clearing off the taxes…
…as well as the accuring interest on the balance due.
In such cases paying off the entire debt in full is the best method to hop out of the clutches of a federal tax lien.
And once the entire tax amount is paid, the IRS releases the lien within 30 days.
In case a lien is attached against an individual’s liability by mistake or during some very difficult circumstances (like an injured spouse claim), the tax lien can be appealed.
Discharging the Property:
Another option is to apply for a Certificate of Discharge in order to remove a tax lien from some specific property.
But such a “discharge” of property to remove the federal tax lien from some property would be granted only if they qualify under Internal Revenue Code (IRC) provisions.
This is process by which the the creditors who have a share on the property on which a federal tax lien has been laid, gets paid first before an individual clears the lien.
That is, the other creditors are given preference over IRS for a particular property.
This process does not remove the lien as such but allows other creditors to get paid first.
This process, called subordination, is carried out by IRS in case it requires other creditors approval while putting up the property for sale.
For instance, in case the IRS has attached a lien to a property which also has a mortgage, it means that the bank is involved as it also holds a lien.
If the bank doesn’t get the money it holds on the property, even after the satisfying the federal tax lien, then it might not approve for the sale of the property.
But if the IRS goes for subordination, IRS gets paid after the bank receives its share.
Withdrawal is a method to remove the Notice of Federal Tax Lien and ensure that other creditors are not competing with the IRS for the property.
Taxpayers who go for a Direct Debit Installment Agreement are mostly eligible for the withdrawal option.
This method does not free you off of the tax debt and the individual still need to pay the amount that is due.
There are two additional withdrawal options. In the first option, withdrawal of Notice of Federal Tax Lien is possible after the lien’s release.
The following considerations come into play:
The individual is in compliance for all individual returns, business returns, and information returns for the previous three years.
The individual is still paying federal tax deposits and the tax payments.
In the second option, the Notice of Federal Tax Lien is withdrawn after one has opted for or converted the regular payment instalment agreement to Direct Debit instalment agreement.
The following considerations come into play:
The individual qualifies as a taxpayer (for example, businesses have income tax liability, or any out of business entities having tax debt).
The individual owes $25,000 or less (In case of owing more than $25,000, one has to pay the balance to $25,000 and only then request the withdrawal of the Notice of Federal Tax Lien).
The Direct Debit Installment Agreement that an individual has opted for must pay the entire amount owed within 60 months or prior to expiring of the Collection Statute, whichever comes earlier.
- The individual is fully complies with other payment and filing requirements.
- The individual has made close to three back to back direct debit payments
- The individual has not failed to pay any current or previous payment in the Direct Debit Installment agreement.
What Are the Steps to Follow If A Notice of Federal Tax Lien Is Issued To an Individual?
Firstly, the individual who has received a notice of federal tax lien should remain calm and not panic.
IRS and other agencies that are into tax relief services provide sufficient assistance for anyone who has been issued the notice.
Following are the ways in which IRS offers assistance:
Applying for withdrawal:
When an individual agrees to enroll for direct debit installment agreement, the payments to the IRS are automatically deducted from the bank account at different intervals agreed by them.
Offer in compromise:
An Offer in Compromise is a process where the taxpayer and IRS come to a mutual agreement,
and the individual is allowed to settle the tax debt for an amount lesser than the full amount, asked on the assessment of IRS on their ability to pay the debt.
In case you do not qualify for any federal tax lien payment methods by which you can clear off the federal tax lien…
…if you have a debt of more than $25,000 under your belt, you can also go for federal debt consolidation way to pay them off.
What Is The Difference Between Federal and State Tax Liens?
All citizens of the United States, regardless of which state they belong to, have to pay federal income tax.
So in case you own a house or a business in any of the states, you are bound to pay the tax imposed by the Federal government.
Internal Revenue Service (IRS), a Federal agency, enforces all the tax laws and collects taxes from the citizens.
The tax amount charged by the IRS is based on the income earned by the individual,
since the US follows a progressive system of tax — wherein the more you earn, the more tax you pay…
…the marginal tax bracket is the highest tax rate that is paid by the citizen from his income.
In case an individual has some outstanding tax liens, he can join the Fresh Start Program…
…introduced by the IRS wherein a taxpayer can request to withdraw the lien from his account if he pays the outstanding tax in full.
In some cases there is the facility for the taxpayer to withdraw their federal liens after they make a minimum of three payments.
Once the tax liens are withdrawn, the credit bureaus can be informed.
In the case of state liens a taxpayer can request for withdrawal after he has paid the state liens.
O.K. so what if I owe a State Tax Lien?
In order to ensure that each taxpayer pays his dues to the state, the State Department of Taxation is set to secure payment in any form from the individual.
Like the federal lien, even a state lien is displayed on the credit reports and impact the taxpayer negatively in his attempt to secure financing for car or house, etc.
Filing of State Tax Lien
A state tax collector can easily file a lien against an individual’s personal property in case he has made no efforts to pay back the taxes imposed by the State Taxation Authority.
When a state tax lien is imposed on a person’s property, the state government has the rights to seize or sell the assets owned by him…
…in case he cannot or is not in the situation to pay back the taxes.
But before taking the extreme step of filing a lien, the state taxation authorities will seek alternative methods to collect taxes.
Preventing State Tax Lien:
State tax lien is prevented best by making a full payment to the state before the lien is even filed.
In case, making a full payment in a single go becomes impossible, other options such as choosing an installment agreement, or negotiating for OIC method can be a solution.
But it is always best to approach the tax attorney for assessing the current situation and choose the best way to avoid lien and save your credit report from a negative entry.
Methods to Resolve Unpaid State Taxes
Following are the methods to deal with the unpaid state taxes that have mounted on your account:
This is a payment agreement which allows an individual who is a taxpayer to pay the amount in monthly instalments in order to relieve themselves from the imposed taxes.
A taxpayer entering into such an agreement is considered to be in a stable position while dealing with the IRS or other state taxation authorities.
Offer in Compromise (OIC):
When a taxpayer is not in the position to pay taxes at all before the given time duration, this program is offered to him.
This program helps taxpayers to settle down for amount lesser than their due amount and pay the same, instead of paying the entire amount.
Partial Pay Installment:
Partial pay installment aids a taxpayer to pay the tax amount in small monthly installment than the otherwise regular installment that is assigned to them.
The financial situation and the income earned by the taxpayer determines the amount for the monthly installment.
Sometimes, the amount that is decided for monthly installments is quite small that the entire debt is not covered, or paid off before the Collection Statute Expiration Date (CSED) or the statute of limitations on the debt expires.
Thus, any unpaid taxes by the CSED is said to have been wiped clean and the taxpayer is relieved from paying taxes.
Agreement of Currently Not Collectible (CNC):
If the taxpayer does not have enough money to pay the taxes,
he can be declared uncollectible which ceases the collection activities till the time the financial situation of the person improves…
…enough to let them pay the debt amount without causing them any financial hardship.
Sometimes, even the statute of limitations expires prior to taxpayer being able to pay the entire debt and the taxpayer later does not owe the debt.
This option comes into play in conjunction with other options of paying off the state lien.
If an individual has a very genuine reason for not being able to pay the tax amount, which is also considered to be a reasonable cause, the penalties are either reduced or removed.
Thus, there is a solution to every situation.
Generally, the taxing authorities do not make things hard for the taxpayer who is facing some kind of financial crunch.
After the IRS or the state taxation authorities assess a taxpayer’s financial situation…
…and understand that collection of taxes will only worsen the financial hardship faced by the person,
they find suitable solutions for the taxpayer and help him deal with the situation.
How do I Remove Tax Liens from My Credit Reports?
The tax reports will always display your debts and taxes.
Having unpaid IRS or state tax debts will always negatively affect your credit score,
…thus making it hard if you to get any additional loans if you do not find ways to deal with paying off the debt.
Following are some methods by which you can ensure your credit report does not have many negatives on it.
Request a copy of credit report to check for accuracy from www.annualcreditreport.com.
Everyone is entitled to one free credit report per year that does not get reported as an inquiry on your credit report.
You can always check your credit with www.creditkarma.com as well. It is 100% free.
All the tax liens can be found within the report.
Contact the federal or state tax office for confirming the due that is left for you to pay off.
It can also be a good opportunity to understand various agreements and choose one to settle the debt.
Paying off the amount in full or using repayment plan is the best way to come out of the burden of taxes.
Also, take the paid-in-full letter for sure from the tax office.
Taxpayer can dispute the items on the credit report either online, or through a dispute letter or by making a call to the credit bureau in case he or she is not sure about the entry on the report.
What’s the bottom line?
If you find yourself in this situation of owing back taxes to either the Federal IRS or the State Depatment of Taxation then you owe it to yourself to seek solid professional help or counseling.
Unless you are a tax lawyer who is fully up to date on all of the intricacies of tax law then by all means seek professional help.
This is not an area of your life where you want to wing it and just let the chips fall where they may.
These government agencies want their money, and they have all of the resources of the U.S. government and States to back them up to make sure that they get paid in full.
If you need help you can always get a free credit and tax consultant at CuraDebt.
CuraDebt is one of the nations top credit and debt resolution companies.
They have highly trained IRS experts on staff, standing by and ready to help.
So ckick this link – get IRS tax help now for your free consultation.
Let a trained professional deal with you burdens so you can get on with your life.
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