How to Avoid an IRS Tax Lien or IRS Tax Levy
If you've falling into bad graces with the IRS by not filing your tax returns, the IRS can place a lien on your home or levy (garnish) your wages, bank account, real property, and even your Social Security benefits. A federal tax lien or levy against you is almost impossible to lift once the IRS has taken action to collect a tax debt--especially if you haven't filed your income tax returns in several years. Here's how to keep your property safe.
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Instructions
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File past-due tax returns if you have not already done so. This is where people get into trouble. If you neglect your tax returns, any amount you owe is subject to interest. Not to mention that walloping fee you'll owe for late filing. If the IRS has to file a substitute for return (SFR), you're in bad shape -- this means that the IRS filed your returns for you based on their estimations of your earnings. They will not give you the same deductions that you could have taken had you filed your past-due returns yourself.
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Don't get confused about how to apply the ten-year statute of limitations that is applied to past-due taxes. If you have not filed a return in numerous years, the IRS can go as far back as necessary to make sure that all of your returns are filed. The ten-year clock starts ticking once an actual amount is assessed by the IRS. The IRS has ten years to collect a debt -- not ten years to hunt down your past-due returns. They can do this until you're old and grey.
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If you have not paid your assessed taxes (vis-a-vis your own timely filing) or the assessed taxes as estimated by the IRS on their SFR(s), expect to get a Notice and Demand for Payment. This is IRS shorthand for "Pay it now ... or else." If you fail to take action in 10 days, the IRS will send you a second notice specifying how it intends to enforce collection.
This will either be through a lien on your property or a levy. You have 30 days to respond during which time you can contest the amount, file an amended return (if an SFR was prepared), raise an innocent spouse defense, request a hearing with the IRS, or the most desirable choice, to arrange payments with the IRS so they won't have to place a levy or lien against your property.
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Understand the definitions of "lien" and "levy" and how they differ:
A lien is a security against your unpaid tax debt. If the IRS places a lien against your home, you can still live in it; but when it is sold, the IRS gets its cut to apply toward your debt.
A levy is something that the IRS takes to satisfy or convert into cash to apply to your debt. The IRS can levy your home, car, boat, or recreational vehicle (seize and sell). It can also garnish (levy) your wages (anywhere between 30 and 70 percent of your earnings) and some retirement benefits, as well as the money in your bank account.
Scared? Yeah. You should be ...
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Arrange to make installment payments with the IRS before the 30-day window closes. If you cannot afford a tax attorney, the Tax Advocate Services in your state can help determine if you are eligible. The number is: 1-877-777-4778.
Make your payments religiously. Just because you've dodged the bullet doesn't mean the IRS cannot slap another lien or levy on your property again if you stop making payments.
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Tips & Warnings
Need legal advice? Look for pro bono or legal aid services in your state. If you can afford the services of a tax attorney, the IRS probably won't buy that "hardship" line (see Resources).
Don't believe everything you read on the Internet, specifically services that "guarantee" they can release a lien or levy. If the IRS has reached the point where it has to commandeer your property, Uncle Sam has already identified you as a problem child, and you have little bargaining power. You MAY be able to get a partial lease if you can document to the IRS that the levy or lien poses a severe economic hardship AND you have an exemplary filing and payment record with the IRS for the past five years.
Hardship means just that ... hardship. Not being able to afford your rent, food, clothing, gas, etc. Hardship is not foregoing the annual family vacation or not being able to buy a new home entertainment center. The IRS already knows what you can get by on, based on the city in which you live.
Resources
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