An IRS tax lien is established when there is a tax debt you owe the IRS. The IRS must assess the taxes first. Assessment of taxes establishes the tax liability. The date of the assessment is important. It establishes the collection statute of limitation. The collection statute of limitation is the date after which the IRS cannot collect for back taxes. It also establishes other dates for audit purposes and others. The IRS must also send you many notices to pay the tax and that it will file the tax lien before the lien is attached.
If you fail to pay your tax debt, the tax lien will be filed. Notice that negotiating an IRS settlement such as installment agreement or an offer in compromise will not stop the IRS from filing the lien. As a matter of fact, in many instances the minute your CPA or tax attorney negotiates an installment agreement (in the same conference) they will inform the IRS representative of the tax lien filing.
Properties Subject to an IRS Tax Lien
Before discussing a tax resolution or tax help available for the IRS tax lien, we need to explain what the properties subject to tax liens may be.
1) Everyone associates an IRS lien and lien release with real property such as land and buildings. Also the tax lien can attach to moveable objects such as goods, autos, jewelry. What is usually not thought of as subject tot the tax lien are the intangibles such as trademarks and copyrights.
2) The lien can attach to the individual and to business. If the tax debt belongs to the corporation, the lien can only be attached to the corporation and not to the corporate owners. The corporate shield protects them. Sometimes the corporate shield can be pierced. If you treat your corporation as if it did not exist, the shield may be pierced.
If you write grocery checks for your personal consumption or if you ignore the formalities such as stockholders meeting and keeping minutes that also may be reason to pierce the corporate shield and subject you to the liability of the corporation itself (consult your attorney).
Also a limited partner in a partnership is protected from the tax debt of the partnership. The general partner is not. Remember if the tax debt is a payroll tax debt then anyone who writes the checks (even non partners may be liable for payroll tax debt) regardless of the form of doing business.
Limited Liability Company’s tax debt is the owner’s tax debt if the entity is discharged for tax purposes and the owner files his tax on schedule C. If the company is treated like a corporation then the tax debt (as in the case of the regular corporation) will be the corporation’s debt only.
3) Lien can attach to your house or homestead although it is usually protected from other creditors. The IRS can put a lien on your home and sell it. The non delinquent spouse (which is an innocent spouse in this case) will be compensated to the extent of her share in the house from the sale proceeds.
4) If you are the owner of a term life insurance policy, then the lien may not attach to it because there is no money to be attached except after death. If the policy has a cash surrender value then the lien can attach to the value to satisfy the back taxes.
5) The IRS will attach a lien to the Retirement plans to satisfy your tax debt if the plan is in the payment mode but will not attach the lien if you are not retired and are not receiving distribution.
Early distribution from a retirement plan will be exempt from early withdrawal penalty of 10% if the IRS levies the amount. So the smart thing to do is not for you to receive the distribution to payoff your tax debt, but to instead to let the IRS levy the amount from your retirement.
Tax Relief from an IRS Tax Lien
There are five possible situations where the issue of a tax lien relief comes into play:
1) Certificate of non attachment: If you receive a tax lien notice by mistake because of similarity of names, you can have a tax resolution when you file for non attachment of the lien to your property. You must submit the application for certificate of non attachment to the IRS in writing providing the necessary details required as to why the lien should not be attached to you (see publication 4235) and that you are not party to the tax problem.
2) Release Erroneous Lien: If you still have a lien against a property for which the tax debt has been paid prior to the filing of the lien, then the IRS must release the lien. Also if the lien has been filed for a debt that was no longer eligible for collection because of the lapse of the statute, then the IRS must release that lien.
3) Certificate of Release of Paid or Unenforceable Lien: If the lien was previously filed and you have completely paid the lien or because the statute has lapsed on the tax lien that was on your property, then that lien is unenforceable and the IRS must release the lien (within 30 days). Likewise, if offered to post a bond to pay the taxes and the IRS accepts the bond, then the IRS must release the lien.
4) Lien Subordination: If there is a lien on your property and you want to sell the property to your best interest and the IRS best interest, then you can solve this tax problem by applying to the IRS to release the lien until the property is sold and the IRS can then collect what is left after paying off the mortgage to the extent of the tax debt.
5) Lien Discharge: You can find tax help if your CPA, your tax attorney or enrolled agent applies to discharge the lien with the IRS if there is no benefit for the IRS to gain by having this lien on your property. If you are upside down and have no equity in the property the IRS will completely discharge the lien and let you sell the property.