Once you owe the IRS money, a Notice of Federal Tax Lien is filed against you giving notice to the world that you owe the IRS money. This obviously has a very adverse affect on your credit, which in turn can have an adverse affect on your business if, as a result of the lien, you are unable to borrow funds or obtain credit. It’s best to avoid the IRS filing a Notice of Federal Tax Lien whenever possible; this can be difficult, if you do not have the money to pay the IRS in full.
You increase your chances significantly of avoiding a lien being filed against you if you hire an attorney at the very onset of owing the IRS money. Your counsel may be able to intervene at the very beginning of the process and convince the IRS NOT to file the lien. It usually requires pointing out to the IRS that filing the lien will impair collection of the tax liability.
For example, I successfully convinced the IRS not to file a lien against a taxpayer who was in the process of trying to get a line of credit on his home by arguing that if taxpayer did not get the line of credit, he would have no money to pay the IRS. In addition, I have also been able to convince the IRS not to file a lien based on the position that filing the lien would freeze taxpayer’s operating capital and cause the business to close its doors. It follows, by not filing the lien against the taxpayer, the IRS stands a chance of actually getting paid.
While these arguments may seem straightforward, these lien negotiations should to be handled by an attorney who is understands not only your rights as a taxpayer but also what it takes to operate a business.
If a lien has been filed, there may be a possibility that you could qualify for a lien withdrawal. A “withdrawal” removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for your property. You can qualify for a lien withdrawal if you have paid your tax liability in full, you have filed your tax returns for the last three years, and you are current on your estimated taxes and federal tax deposits, as applicable.
Over the last few years, the IRS implemented changes to its existing lien procedures that allow certain taxpayers to qualify for their liens to be withdrawn even before the tax is paid in full. The new policy is that if you have entered into or converted your regular installment agreement to a direct debit installment agreement, you may qualify to have your lien withdrawn if you meet the following general eligibility requirements:
(1) you are a qualifying taxpayer (an individual, a business with income tax liability only, and out of business entities with any type of tax debt);
(2) you owe $25,000 or less;
(3) your direct debit installment agreement pays the amount you owe within 60 months or the collection statute, whichever is earlier;
(4) you are in full compliance with other filing and paying requirements;
(5) you have made three consecutive direct debit payments
(6) you have not defaulted previously on any direct debit installment agreement with the IRS.
If you believe you qualify, go to the IRS website and download IRS Form 12277, Application for Withdrawal if Filed Form 668(Y), Notice of Federal Tax Lien. In filing out the Form you must state your reason for requesting the withdrawal of the Notice of Federal Tax Lien and explain your basis for that request. You mail your request to the Advisory Group Address you are assigned in Publication 4235, Advisory Group Addresses which is also available at the IRS website.
After mailing in your IRS Form 12277, you can expect to wait at least 30 to 90 days before hearing a response. Finally, if the IRS approves your request, the IRS will file a Form 10916(c), Withdrawal of Federal Tax Lien, in the recording office where the original Notice of Federal Tax Lien was filed and provide you a copy of the document for your records. If the determination is made to not withdraw the Notice of Federal Tax Lien, the IRS will notify you and provide information regarding your rights to appeal the decision. If you want to appeal, I suggest you hire legal counsel to guide you through the appeals process.
A Notice of Federal Tax Lien can kill your credit rating. Avoiding the lien or getting it released sooner than later will help your credit significantly. It is advisable to hire an attorney at the onset hopefully avoid the lien in the first place or, at the very least, have it released as soon as possible.
Jennifer Clifton, Tax Attorney, Fortress Financial Services, Inc. 877-777-7430