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Affordable Tax Blog

What is an an IRS Tax Lien and How Can it be Removed?

What is a tax lien?

A tax lien is a collection method used by the IRS or state that creates a legal claim to specific property in order to satisfy a tax debt. It arises when federal tax is assessed and remains unpaid after notification to the taxpayer for payment. The property subject to a tax lien can include real estate, personal property and financial assets; such as a taxpayer’s home, car and pension.

What is a tax levy?

A tax levy is a collection method used by the IRS or state that allows the legal seizure or forced collection of a taxpayer’s property to satisfy a tax debt. A bank garnishment is an example of a tax levy.

Notice of a federal tax lien

A tax lien is recorded in the register of deeds office in the county of the taxpayer’s residence. This is intended to provide notice to third parties that specific property is subject to a security interest by the federal government and the property is subject to restrictions on transfer or sale. This makes it difficult to sell or refinance property that is subject to a tax lien. However, the IRS can release property from a lien if the net proceeds of a sale can satisfy the lien.

Reporting to the credit reporting agencies

Once the tax lien is recorded, the three major credit reporting agencies are notified and will include the tax lien on the taxpayer’s credit reports. This will have an adverse affect on the taxpayers credit rating. Furthermore, it may affect future job applications since potential employers are increasingly checking candidates’ credit rating before hiring them.

Determining whether the tax lien reflects the proper amount of tax debt and penalties

The taxpayer should determine that the federal tax lien is for the correct amount of tax liability. If the total tax has been adjusted, then so should the amount of the tax lien. If a substitute for return has been filed by the IRS for the taxpayer, then the taxpayer should file returns for the missing years as soon as possible. The substitute for return will likely indicate a larger amount of tax due since it will not take into account exemptions, deductions and credits. Once the actual returns are filed and processed, the IRS will adjust the total taxes due to the actual amounts per the returns. If the tax debt is lowered, then so should the tax lien.

Account transcripts will show penalties that have been assessed against the taxpayer. Reductions in the tax debt will reduce penalties that are determined by the percentage of the tax due. Furthermore, the IRS will abate certain penalties upon a showing of reasonable cause for noncompliance.

Removing a tax lien

The IRS will remove a federal tax lien if the lien was filed in error, if the outstanding balance is paid in full, if the outstanding balance is otherwise satisfied (for example through a successful offer in compromise), if the lien becomes unenforceable (for example, the lien has expired due to the ten-year statute of limitations to collect the tax debt), or the outstanding tax debt is less than $25,000 and is being paid monthly by a direct debit installment agreement. If the tax debt is more than $25,000, the taxpayer can qualify by paying down the balance over $25,000 so that the balance satisfies the maximum requirements.

Removing a Tax Lien from a Credit Report

Once a federal tax lien has been paid or otherwise satisfied, the taxpayer can get it removed from his credit report without waiting the seven year reporting period of the credit reporting companies.

The taxpayer must complete IRS Form 12277, request for withdrawal of the original tax lien. The IRS will send the taxpayer a lien release.  A copy of the release should be sent to Equifax, Experian and TransUnion.

Four Insider Tips to IRS Tax Relief

IRS Tax Help

If you are currently facing IRS tax problems it is possible to get back on track with these insider tips to tax relief.

#1 Always File your Tax Returns on Time

There are several reasons why you should always file your tax return on time even if you do not send in the money owed with the return.

The IRS can charge a penalty of up to 25% for filing a tax return late. You can expect to receive a letter from the IRS notifying you of the tax deficiency, but you will have avoided a 25% penalty.

Another reason for filing your tax return on time is that the statute of limitations for the IRS to collect taxes will begin to run. The IRS has ten years to start a collection action and if you do not file a return, they can come to collect at any time.

If you do not file your tax return, the IRS reserves the right to file a substitute for return on your behalf. The IRS will calculate the amount of taxes you owe based on taxable income but will not take into account eexemptions, itemized and other deductions, and tax credits. One thing is certain, you will owe more tax if the IRS files a substitute return for you.

Lastly, in order to qualify for most settlement options, you must be current with the filing of all your tax returns.It is in your best interest to always file your tax return on time.

#2 Do Not Pay IRS Tax Penalties

The IRS has over 148 different types of penalties.You may qualify to reduce or eliminate any penalties imposed, but you must make a written request and have reasonable cause.

Reasonable cause is based on the facts and circumstances in your situation. The IRS may require documentation to support your claim.

Reasonable cause can include medical issues, bad accountants, ignorance of the tax laws, ex-spouses, helping to provide care for a loved one, military call-ups, fires, floods, alcoholism, drug abuse, death and even for relying on bad advice from an IRS agent.

#3 Do Not Talk to the IRS Auditor

Talking to an IRS auditor can involve concern over saying something that could inadvertently hurt you, fear of the unknown and lack of familiarity with the process, or even a feeling of intimidation. Every question the auditor asks has a purpose, and that purpose is to get information that can help them determine if you have underreported your income or overstated your expenses.

You have rights to protect you against yourself during an audit and one of the most important of those rights is the right to representation. Once you have retained a qualified tax professional all IRS calls, correspondence and interviews route through your representative. That means your representative handles all the calls, writing, document production and negotiations with the IRS auditor.

#4 Cut a Deal with the IRS

The IRS can make settlement deals that may include dramatically reducing or eliminating your taxes. Negotiating a favorable settlement can be tricky and complex. An experienced tax professional would determine which settlement option to pursue based on your financial situation and goals, and would advocate for your qualification.

The IRS cuts these deals to get taxpayers back in the system as current so they can continue to collect taxes. These settlements require that all tax returns and payments be submitted on time for the next five years. If you do not, then the IRS will revoke the deal and will bill you for the original amount, AGAIN.

Beware of New IRS Tax Scam – Fake CP2000 Notices – Affordable Care Act

New IRS Tax Scam

The Internal Revenue Service has issued an alert to taxpayers of a new tax scam involving emails that include fake CP2000 notices. An official CP-2000 issued by the Internal Revenue Service is a computer-generated notice that informs the taxpayer that tax information reported from a third party does not match the information reported by the taxpayer. The notice gives the taxpayer 30 days from the date of the letter to respond. It is not a bill and does not ask for payment.

The fake CP2000 notice seeks payment for unpaid taxes related to the Affordable Care Act and includes an address and link to submit payment. The IRS advises that taxpayers who receive this scam email should forward it to and then delete it from their email account.

Below is a fake CP2000 notice with notations that identify it as fraudulent.

Beware of Charity Scams Following the Orlando Terrorist Attack

Beware of Charity Scams Following the Orlando Terrorist Attack

The IRS issued an alert, warning of recent charity scams following the Orlando mass shooting. The alert includes the following tips and precautions in order to avoid donating to a fake charity:

  • Only donate to recognized charities,
  • Avoid being scammed by false organizations that use names, websites, and email addresses that are similar to well-known organizations. Use the IRS website search feature,Exempt Organizations Select Check, to find qualified (and sometimes tax-deductible) charities,
  • Beware of fake Go Fund Me accounts,
  • In order to document the donation, contribute by check or credit card and avoid using cash.

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