Liens

A tax lien is the government’s way to secure its interest in your assets and facilitate collection of your tax liability. In the simplest of terms, it’s a last resort action used to secure the payment of your individual or business taxes. When you have unpaid federal or state income taxes, the federal and state governments can legally file a tax lien. If you have unpaid local income or property taxes, local governments may also file a tax lien in that case. After a lien is properly filed, the government has a right to all of your property, as well as any property or rights to property you acquire thereafter. Once its interest in your property is secured, the government can levy or seize your property as a means of collection. In addition to the prospect of a levy or seizure, taxpayers will often witness a significant decline in their credit score and an increase in difficulty in obtaining a loan or line of credit once a tax lien is filed.

Taxpayers facing large tax liabilities often see their debts increase significantly due to added penalties and interest. The IRS often applies various penalties and interest to unpaid back taxes making it more difficult for taxpayers to pay their federal tax debt.

Work Out a Payment Plan

An installment agreement is an agreement between the IRS and the taxpayer to pay down an existing debt in smaller, more manageable amounts, over time. The agreement keeps the IRS from levying as long as the payments are being made in full and on time. Without an agreement, the IRS may take all but a small amount of your paycheck.

Work Out an Offer-in-Compromise, aka Tax Settlement

An offer-in-compromise, or OIC, is a contract between the IRS and a taxpayer that settles back taxes for less than the total amount due. Similar to installment agreements and other IRS tax relief programs, taxpayers need to meet stringent compliance and collectibility requirements in order to qualify.

Get Approved for Financial Hardship Status

If during an investigation, the IRS determines that you cannot pay any of your tax debt at the present time, the IRS will temporarily suspend collection against you and place your account in “currently not collectible” status, or CNC. Taxpayers should be aware that penalties and interest continue to accrue during this time and that their case can be reopened in the future, should their financial situation change. In most cases, it is common for the IRS to schedule an automatic two-year follow up on your case after it is first placed in uncollectible status.

Submit Unfiled Tax Returns

Unfiled tax returns (aka delinquent returns) are a common occurrence with taxpayers and are considered a high priority by the IRS. Along with unfiled returns, taxpayers often also have an outstanding tax liability or tax lien that need to be addressed. This is because the IRS will typically file a tax return on behalf of a taxpayer, using the income information they have on record, and then begin collection actions. These IRS (or State)-prepared tax returns are called “substitute-for-returns”, or SFRs. The resulting tax balances are almost always overstated and can be adjusted by filing an original return. Taxpayers in this situation should be aware that negotiating with the IRS cannot commence until all delinquent tax returns are filed (but not necessarily paid). Before the IRS can consider a tax settlement or a payment plan, the agency will demand that all tax returns be filed.

Get Help With an Audit

A recent IRS trend shows correspondence and in-person audits on the rise, especially among higher income earners. Common causes for being selected for an audit include random selection, a mathematical reconciliation error, document matching, unusual or excessive deductions, tax returns filed in bulk, or a related audit or collection being worked by the IRS, among others.

Learn About the Innocent Spouse Program

Spouses left with a joint tax liability as a result of financial neglect or other adverse actions by their spouse (or ex-spouse) may qualify for tax relief by utilizing the IRS’s Innocent Spouse program. The IRS provides three different kinds of relief under this program; Innocent Spouse Relief, Relief by Separation of Liability, Equitable Relief. Taxpayers that qualify for relief will have the joint liability fully or partially removed from their name and, in cases of full removal, the innocent spouse will no longer be associated with or responsible for the outstanding tax liability. Taxpayers should note that Innocent Spouse Relief is different than Injured Spouse Relief. You may be eligible for relief under injured spouse provisions if you filed a joint tax return and all or part of your portion of the overpayment was applied or offset to your spouse’s past-due federal tax, state income tax, child or spousal support, or a federal non-tax debt such as a student loan.