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What is a Federal Tax Lien?

!!! What is a Federal Tax Lien?


You can either fail to pay your tax in full on time or you can assessed after tax audit. In either case, you are supposed to pay in full within 10 business days. If you cannot make arrangements to settle your delinquent taxes after the ”notice and demand” letter, the Internal Revenue Service (IRS) of the United States Treasury has a right to rectify the situation by filing a federal tax lien which is the ”legal claim” against non-compliant taxpayer’s properties.


!!! How to Get Rid of a Federal Tax Lien


The best policy is to pay the delinquent federal debt in full as promptly as possible.  The Internal Revenue Service (IRS) will remove the lien within 30 days of full payment. When you cannot pay in full, however, you can apply for the payment plan and/or submit ”offer in compromise”.


!! Payment Plan (Installment Agreements)


You can set up a monthly payment plan with the IRS by filing Form 9465. If you satisfy all the prerequisites of payment plan of the IRS, you may even be able to use an online payment arrangement, depending upon the delinquent tax amount. However, the Internal Revenue Service (IRS) will not consider your installment payment application until you file all the required tax returns. Once you get on the payment plan, you should avoid default by paying at least minimum amount you agreed upon. If the payment plan defaults, you might have to pay reinstatement fee to get back on the plan or have to start the process from the scratch.


!! Offer in Compromise


Like the payment plan with the IRS, you must be current with all filing requirements before you apply for an offer in compromise. An __offer in compromise__ allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability along with the installment plan above. The Internal Revenue Service will consider your unique personal factors and circumstances such as the assets, ability to pay, current and prospective income, current age, living expenses, family problems, etc.  __Offer in Compromise Pre-Qualifier__ in the IRS web site can give you  preliminary proposal amount. If the accepted amount is paid, the taxpayer should initiate to request the release of the lien. The IRS oftentimes do not follow through with the removal of the lien voluntarily.


!! Effect of a Federal Tax Lien


A federal tax lien affects your properties, businesses, credit, and sometimes your employment. The federal tax lien attaches to all of your assets. Your ”Notice of Federal Tax Lien” usually continue after the bankruptcy if the IRS recorded the tax lien before your filing fro bankruptcy. In the case of business, the lien attaches to all business property.


!!! The Statute of Limitations and Federal Tax Liens


The IRS has ten years from the date of a tax assessment to collect a debt from the taxpayer for taxes assessed on or after November 6th of 1990. When this date passes, the IRS is barred from attempting to collect your tax debt unless you waive the enforcement of the statute. Released taxpayer must obtain a Certificate of Release of Federal Tax Lien to expunge the record of the lien from the local and/or state office of records.


There are, however, many exceptions that extend the collection time period. Signing of a waiver, bankruptcy proceedings, offer in compromise, and the filing of a Collection Due Process, Innocent Spouse Relief and any other forms of relief extends the statute of limitations.


!!! Summary


The Internal Revenue Service has a right to file the __Notice of Federal Tax Lien__ with a proper authority to claim their interests with your current and/or future properties once you become delinquent with them. You need to pay them in full as soon as possible to remove the lien. The IRS is supposed to remove the lien within thirty days of the full payment. If you cannot pay in one lump sum, you can opt for either an installment plan or offer in compromise.


The statute of limitations on the collection of the federal tax lien is usually ten years from the date of assessment. Due to many exceptions to this statute of limitations, it behooves you to consult with qualified accountant and/or attorney before you sign any documents with the IRS.

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