When it comes to taxes, procrastination can lead to serious repercussions. Among the most severe consequences is the federal government’s action of filing a legal claim known as a federal tax lien against all your present and future assets. But what exactly is a federal tax lien, and what should you do if you find yourself facing one?
Understanding the Federal Tax Lien
A federal tax lien is a formal document filed with a county government, typically where you reside or conduct business, notifying the general public of your outstanding federal tax debt. It’s a significant step the IRS takes to secure the government’s interest in your assets.
The Grip on Your Assets
Once a federal tax lien is in place, it attaches to all your assets, ranging from real estate and investments to vehicles. Furthermore, it extends its reach to any assets you acquire during the duration of the lien. This means that if you decide to sell any property while a federal tax lien is active, the IRS will claim its share before you receive yours.
The moment the IRS files a Notice of Federal Tax Lien, it becomes a matter of public record. Credit reporting agencies often pick up on this information, causing the federal tax lien to eventually appear on your credit report. This can negatively impact your ability to secure credit.
Implications for Your Business
If you’re a business owner, be aware that a tax lien attaches to all your business assets and rights to those assets, including accounts receivable. This can have a significant disruptive effect on your day-to-day operations and exacerbate your financial challenges.
Bankruptcy and the Tax Lien
It’s important to note that filing for bankruptcy doesn’t automatically eliminate your tax debt or the Notice of Federal Tax Lien. These obligations may persist even after the bankruptcy process concludes.
Lien vs. Levy: Understanding the Difference
While the terms “lien” and “levy” are sometimes used interchangeably, they have distinct meanings. A federal tax lien represents the government’s legal interest in your property, without actively seizing or selling your assets. On the other hand, a levy is the actual enforcement of the lien, which can involve actions like withdrawing funds from your bank account or garnishing a portion of your income.
Taking the Next Steps
The IRS suggests that paying your tax debt in full is the best way to release a federal tax lien, which typically occurs within 30 days after full payment. However, for many individuals, cutting a check for the entire amount is not a realistic option. This is where the expertise of a tax resolution specialist can make all the difference.
Contrary to the IRS’s advice, your first step should be to reach out to a qualified tax resolution professional, such as McCauley Law Office, P.C. Attempting to navigate the IRS alone is akin to representing yourself in court—possible but risky.
Our team of experts can design a resolution plan, immediately engage with the IRS on your behalf, and initiate negotiations to alleviate your tax burden. Don’t hesitate to contact our firm for a confidential consultation without any obligation. During this session, we’ll walk you through the available options for permanently resolving your tax issues, providing you with the peace of mind you deserve. Let’s take the first step together towards your financial freedom.