With any tax debt comes an associated federal tax lien. The lien exists as a matter of Law. For many people, it has no impact on their lives. But for others it can be disastrous.
Usually, there’s no public record of a tax lien. Unfortunately, if you owe more than $10,000, the IRS may file a written notice with the county clerk about the tax lien, putting it on public record for everyone to see.
A tax is basically a claim against your property. It takes priority over other kinds of liens but not all. A federal tax lien will not jump in front of a mortgage or a local property tax lien. When a federal tax lien exists, it covers ALL of your property – everything (house, car, tools, collections, clothes, money, retirement accounts, paycheck, etc.). Where the mortgage on your house is only secured by the house itself, tax lien is “secured” by everything you own.
Yep, that’s correct, a Federal tax lien gives the government a claim over your paycheck. That doesn’t mean they will take it, it just means they can. In addition, depending on your profession, it can also make it difficult to obtain employment or renew professional licenses. It can also impact your ability to buy or sell a home, a car, or use credit.
When a tax lien creates a bad situation there are things we can do to help put you in a better position.
In some circumstances, it’s possible to obtain the removal of the public notice. To achieve this, we must demonstrate:
- The lien is creating a financial hardship for you.
- Removing the lien will help the IRS get paid.
Basically, we aim to prove that the existence of that public notice could cause an income loss or financial issue for you. For a business, a lien may interrupt a factoring agreement or a line of credit, which is required for the business to operate. For a person, the existence of a lien might mean the loss of access to borrowing or the loss of a job.
Another possible tactic is to keep the IRS tax lien in place, but subordinate the lien to some other lien. What this means is that we get the IRS to place themselves in second priority position, underneath somebody else like a Bank that you can borrow from.
Most banks won’t lend money if they’re not in the first lien position. Thus, subordinating the tax lien keeps the bank happy.
It’s not uncommon for somebody to have an asset which can be sold to bring in money that helps pay down the tax debt.
“Let’s say you own a 1965 Ford Mustang that’s worth $60,000, and you owe $30,000 on it, and you’re making $500 per monthly payments. You don’t want to sell this car, but it would make life easier if you did, since you owe the IRS $100,000 and they are threatening to garnish your paycheck.
So, you decide to sell the Mustang. The problem is that the IRS lien prevents you from selling it. So, you need to remove the IRS lien to sell the car. The process of doing so from this one piece of property is called a lien discharge, and you obtain a Certificate of Discharge which releases the car only from the lien.
With the Certificate of Discharge, you can sell the car, pay off the car loan, and then have $30,000 to pay down your IRS debt. Plus, $500 per month is freed up to pay toward the remaining IRS debt monthly. This is better than the IRS seizing most of your paycheck every month.
It’s the things that come months after an IRS lien filing that really cause trouble. However, there are options available to address every tax lien. If you’re ready to put your tax debt behind you, let’s talk.
We're in your corner...
Alexander Ming JP, BFC, CPA