When the tax is assessed, the IRS will send several notices demanding that taxpayers pay the amount of the tax debt they owe. The first notice of demand is requesting for payment within 10 days. After five weeks they send another notice “Reminder of Unpaid Tax”. Five weeks after that a second follow up notice “Overdue Tax,” requesting payment within 10 days. Five weeks later, a third notice is sent to the taxpayer requesting to pay their tax debts “Urgent-Payment Required” notice. If the taxpayer does not respond then, a final notice before enforcement will be sent after five weeks.
If the taxpayer does not respond a taxpayer delinquent account is created for the delinquent tax. At this phase taxpayers should expect the appointment of a revenue officer from the IRS district office. The main purpose of the revenue officer is to collect back taxes from you and find where your assets are to secure the tax debt through tax liens and ultimately tax levies or tax seizure.
The IRS policy is to contact the taxpayer before filing the tax lien. Ideally the IRS should try to determine your ability to pay and if a tax lien is adversely detrimental to your ability to pay your back taxes. The filing for notice of lien is not mandatory before wage levies or bank levies. The IRS must give a notice of levy. If the IRS decides to file a lien against a taxpayer for tax debt owed to the IRS, they will file Form 668(Y) (Notice of Federal Tax Lien Under Internal Revenue Laws.)
IRS Approval Procedure for Tax Liens, Tax Levies, and Property Seizures
The IRS is required that the officer filing the tax lien must obtain the supervisor’s review before filing a notice of lien, notice of tax levy, or property seizure. If the procedure is not followed by both the employee may be subject to IRS disciplinary actions. The approval procedure must ascertain the tax debt, the taxpayer’s ability to pay and the value of the property to be subject to the tax levy and the tax lien.
Tax Lien Impact
IRS tax lien may ruin taxpayer’s credit but it does not transfer the property to the IRS. The lien merely proves the IRS claim to such property. If the taxpayer sells the property, the IRS will, as a result of the claim, be guaranteed collection of the tax debt to the extent that there is enough equity to be liquidated in favor of the IRS.
The IRS will have to wait thirty days if it decides to seize the property thus serving the taxpayer intent to levy or seize the property. Then the IRS will have possession of the taxpayer’s property as is the case with a bank levy and wage levy.
People who deal with a taxpayer in good faith are protected from the tax lien. If persons purchases the property following the legal procedures say for recording the real property before the tax lien is filed, they are protected from the tax lien under section 6323 (a). Otherwise if a tax lien is filed persons dealing with taxpayers will take the property subject to the tax lien.
The Rise of Tax Lien
For a tax lien to be made, the IRS must have completed the tax assessment, sent a demand for payment and the taxpayers must have refused to pay the taxes. The IRS does not need to secure court approval. Assessment time is crucial because on that date, the audit statute of three years is determined and also the collection statute of limitation is also determined.
How Long Does the Tax Lien Last?
The tax lien will expire by either paying the tax debt or the expiration of the statute of limitation on collection which is 10 years. The ten year statute may not be waived beyond the ten years by agreement except when the taxpayer is applying for an offer in compromise and agrees to extend the collection statute while the offer is being considered. Also if the taxpayer negotiates an installment agreement the collection statute of limitation may extend up to 90 days after the installment period.
Community Property and Tax Lien
There are eight community property states. Generally if the tax debt belongs to one spouse, the innocent spouse has tax relief in her interest in community property proceeds. Whether the tax lien will attach to the community property including the innocent spouse share in the community property will depend on the state definition of the community property. One state may allow the tax lien to attach to the whole community property, while another will not.
Taxpayer Due Process
The taxpayer has the right of notice. Then the right to a hearing within 30 days after the five days following the filing of the lien notice. The hearing is conducted by an Appeal Officer who was not originally involved in the collection case.