As the enforcer of tax laws in the country, the IRS has various methods to ensure taxpayers fulfill their obligations. One such mechanism is issuing a Notice of Federal Tax Lien (NFTL). But what exactly does a Notice of Federal Tax Lien entail? What are its implications, and what are your options if you receive one?
In today’s blog, we’ll answer these questions, providing clarity on the significance of a Notice of Federal Tax Lien and offering guidance on how to avoid it or address it if you find yourself facing one.
What is a Federal Tax Lien?
Definition and Implications
A federal tax lien is a tool employed by the IRS, a body that represents the government, to secure outstanding tax debts. It involves filing a legal document notifying the public and creditors that an individual owes unpaid taxes and that the government has a legal claim against the taxpayer’s property, including financial assets, to secure the outstanding debt.
If an individual has unpaid taxes and fails to do anything about it, the IRS may serve a federal tax lien. When this happens, your property, credit, and financial standing become attached to the lien, which makes it possible under the law for the government to seize after several notices and opportunities to settle the debts. This will apply to your current and future assets.
How a Tax Lien is Different from a Levy
The terms “tax lien” and “levy” are often confused, but they refer to distinct actions taken by the IRS regarding unpaid taxes. A tax lien establishes the government’s legal claim against a taxpayer’s property, while a levy is the actual tangible action of seizing assets.
For instance, the IRS may file a federal tax lien to inform taxpayers and creditors of the government’s legal claim on the taxpayer’s property. However, if the taxpayer fails to respond to notices and opportunities to settle the debts, the government may proceed with levying those assets.
The Notice of Federal Tax Lien
What Triggers a Notice?
The IRS may file a Notice of Federal Tax Lien when a taxpayer fails to settle their outstanding tax liabilities after receiving notifications and demands for payment.
The IRS typically reviews the amount owed, puts it in the books, and sends a notice asking for the payment. If individuals don’t respond and act upon the request, the IRS can file a notice of federal tax lien. This filing is commonly triggered when an individual owes $10,000 or more in unpaid taxes or when a business owes $25,000 or more.
Understanding the Notice
The Notice of Federal Tax Lien typically includes the taxpayer’s full name, address, and identification number, such as social security number or employer identification Number. It specifies the type of tax owed, such as income or payroll tax, the tax period(s) involved, and the total amount of unpaid tax debt, including any accrued interest and penalties. The lien also includes a legal statement indicating that a federal tax lien has been filed and attached to the taxpayer’s current and future property and financial assets.
To avoid escalating the situation, taxpayers must address the notice promptly. Ignoring a Notice of Federal Tax Lien can have severe consequences for the taxpayer.
Consequences of a Federal Tax Lien
Impact on Assets
Your assets, including personal property and financial holdings, are profoundly affected by the notice. As we’ve discussed, when you fail to resolve the outstanding debt despite receiving multiple notices and opportunities, the government has a legal claim against the taxpayer’s property.
If you’re a business owner, any business properties, equipment, inventory, and accounts receivable owned by the company are also attached to the lien. Furthermore, it’s important to note that filing for bankruptcy may not necessarily provide relief from a federal tax lien.
How to Respond to a Notice of Federal Tax Lien
Immediate Steps to Take
If you receive a Notice of Federal Tax Lien, it’s crucial to take immediate action to address the situation and prevent it from escalating. Here are some steps to follow:
- Carefully review the notice to verify the accuracy of the information provided, including the amount owed, tax periods involved, and other relevant details.
- If any discrepancies or errors are found on the notice, or if you have additional questions, contact the IRS immediately to clarify or resolve the matter.
- Consider consulting a tax attorney to help navigate the legal implications of the notice and develop an action plan tailored to your specific situation.
- Lastly, respond timely. Failure to respond to the notice within the specified timeframe can lead to further enforcement actions.
Options for Resolution
To pay off the entire debt. Once the total amount is settled, the IRS will typically lift the lien within 30 days. However, if full payment is not feasible, taxpayers have several other options:
Payment Plans (Installment Agreement): Taxpayers can request an installment agreement, allowing them to pay the debt gradually through scheduled payments over an extended period.
Offer in Compromise: If you meet the eligibility criteria, you may qualify for an Offer in Compromise, enabling you to settle your tax debt for less than the total amount owed. This option is typically available to individuals experiencing financial hardship.
Disputing the lien: Taxpayers have the right to dispute the Notice of Federal Tax Lien if they believe there are errors or inaccuracies in the information provided. Proper documentation and evidence must be presented to support the case.
Withdrawal or Subordination: In certain circumstances, you may be able to request the withdrawal or subordination of the tax lien. Withdrawal removes the lien from the public record, while subordination allows creditors to move ahead of the IRS, making it easier for taxpayers to get a loan. However, these options do not absolve you of the debt; you are still responsible for settling the outstanding amount.
Preventing Future Tax Liens
Best Practices for Tax Compliance
To steer clear of tax troubles such as receiving a Notice of Federal Tax Lien, it’s vital to stay proactive with your tax responsibilities. Start by filing your tax returns accurately and punctually each year. Establish good recordkeeping practices by maintaining organized records of all tax-related documents, income sources, deductions, and payments.
This ensures you have the necessary information to file accurate returns and support claims if needed. Moreover, stay informed about updates or changes to tax laws, regulations, and filing requirements that may impact your situation. Regularly review guidance from the Internal Revenue Service (IRS) and consult with a tax professional when necessary.
Proactively addressing changes can help you maintain compliance and avoid potential issues.
How Greenberg Law Group P.A. Can Help
When navigating tax-related matters, seeking expert assistance can make all the difference. At Greenberg Law Group, we specialize in various tax issues, including negotiation, representation, and compliance. Whether you’re dealing with tax debt or seeking guidance on tax laws, our team is highly experienced and equipped to assist you. We’re committed to being your trusted partner in navigating the complexities of tax and achieving the best possible outcome for you!
End Note
Dealing with a Notice of Federal Tax Lien from the IRS is a serious matter that demands immediate attention. Ignoring outstanding tax debts can lead to the IRS filing this legal claim against your present and future assets, including real estate, personal property, and financial accounts.
If you find yourself in this situation, there are options available to resolve the issue successfully. It is crucial to respond accurately and on time to any notices or requests from the IRS. Explore alternatives such as installment agreements, offers in compromise, or lien withdrawal/subordination in eligible cases. Additionally, taking proactive steps to avoid receiving a lien in the first place, such as staying informed about changes in tax laws and maintaining well-organized records, can help prevent future issues.
Seeking assistance from a tax attorney can provide valuable support in understanding, preparing, and responding to complex tax matters.
Contact us at Greenberg Law Group for the most comprehensive and trusted tax attorney in town!
