According to the internal revenue manual of the IRS, the purpose of a tax lien is “to protect the Government’s right of priority against certain third parties, typically a purchaser, holder of a security interest, mechanic’s lien, or judgment lien creditor.” A tax lien is a public record that is placed against a taxpayer with unpaid tax liabilities. It is placed on record by the IRS or State tax collection agencies to protect the interest of the government in the event that a taxpayer takes an action that would involve granting a loan, selling or refinancing a home, or any other type of action where your credit is reviewed. A tax lien is a way for the IRS or even State collection agencies to receive their share of any proceeds that would pertain to transactions indicated above. However, the lien does not force the taxpayer to sell real estate property. Many taxpayers fear that a lien is a way for the IRS to take away their primary residence, rendering them homeless and losing all equity they’ve accumulated over the years. This is not the case! A tax lien is commonly confused with a seizure of property. The IRS takes special measures in assessing a collections case to that extreme and, the IRS does not normally take a taxpayer’s personal residence.
Once the IRS determines that filing a tax lien is appropriate, a tax lien filing is then placed on every tax delinquency year in place. So, if the taxpayer owes for a series of tax years, a lien notice can be delivered to the taxpayer in a letter indicating multiple year lien filing or the liens can be filed at separate times and the taxpayer can receive different IRS notices indicating liens being filed at different time frames for separate years of tax delinquencies, this is depending on when the new tax liabilities are being incurred.
Even if a taxpayer is in the middle of negotiating a resolution with the IRS, a lien can be filed during the process. As stated, the lien is there to protect the interest of the government, so even if negotiations are in the works (installment agreements, full pay promises, or even offer in compromise procedures), the IRS division you’re working with may place a lien on your public record. The determination of filing a lien is dependent on many factors, you’re tax professional can assist you in working with IRS agents in finding reasonable solutions without the need of filing a Notice of Federal Tax Lien (NFTL). Avoiding filing a NFTL is based on certain criteria and is negotiable with the IRS. However, the IRS has strict regulations that would allow a lien from not being filed. If you’re reasoning to the IRS for them not to file a tax lien is that it is embarrassing to you, it causes unwanted solicitation, or that it affects your credit rating, none of these reasons are valid enough to warrant the IRS to not issue the lien.
Determining if placing a tax lien on taxpayer’s account will hamper collecting the tax liability
As stated, the IRS can negotiate a resolution to pay back liabilities without the need to issue a Notice of Federal Tax Lien (NFTL). However, the determination to do so is on a case by case basis. According to the Internal Revenue Manual (18.104.22.168.2, section 4), “The determination to defer the filing of a NFTL because the NFTL will hamper collection must be part of an agreed resolution between the IRS and the taxpayer that would be in the best interest of the government and the public. Hamper collection means there is a reasonable certainty, supported with documentation from the taxpayer, that deferring the filing of a NFTL is in the Government’s best interest and will facilitate the collection process.” What this tells us is that the ability for the taxpayer to pay their delinquent taxes is obstructed by the filing of the federal tax lien. A situation that can give rise to this would be a viable business’ having an agreeable payment plan with the IRS, but due to the NFTL, they may lose their ability to collect on their accounts receivables. If this were the case, your tax representative must show the IRS with reasonable certainty that tax collections (that is, meeting an agreed upon installment agreement) is hampered by the inability to collect full account receivables in order to meet operating expenses to keep the business open, which in turn allows payments to be made to the IRS payment plan.
Your tax representative should be able to determine if your case warrants a deferral or abdicates the requirement to file a Notice of Federal Tax lien.
New IRS Initiatives on Tax Lien Withdrawal & Releases
As of February 2011, the IRS has initiated new regulations to assist struggling taxpayers in repaying their delinquent tax liabilities. As part of the new initiatives, the IRS is adjusting some of their lien policies as follows:
- Increasing the dollar threshold to file liens from $5,000 to $10,000. (Note: Taxpayers can still receive a lien filing even if their liability is under $10,000 if certain issues are determined).
- Making it easier for taxpayer’s to obtain lien withdrawals after paying a tax bill.
- If taxpayer enters into a Direct Debit Installment Agreement, the IRS will withdraw filed clients, in most cases.
The IRS has certain criteria that must be met in order for tax liens to be released/withdrawn while under a viable direct debit payment plan. Per the irs.gov website, the criteria is as follows:
Qualifying taxpayers are:
- Individuals (Form 1040 tax)
- Businesses with income tax liability only (payroll tax delinquencies do not qualify for a currently operating business)
- Out of business entities with any type of tax debt
Eligibility Requirements are:
- The current amount you owe must be $25,000 or less
- If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting the lien withdrawal to be eligible
- Your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier
- You must be in full compliance with other filing and payment requirements
- You must have made three consecutive direct debit payments
- You cannot have previously received a lien withdrawal for the same taxes unless the withdrawal was for an improper filing of the lien
- You cannot have defaulted on your current, or any previous, direct debit installment agreement
If you have an established payment plan with the IRS (you pay via mailed payments), you can convert to a Direct Debit installment to qualify for tax lien withdrawals (provided that other criteria mentioned above is also met).
At The Law Office of Elizabeth Gonsalves we can facilitate the process of the new IRS initiatives as they pertain to your tax case. Give us a call today at 855-443-4442 to discuss your options!