IRS Tax Liens – How to Prevent a Tax Lien
IRS Tax Liens – How to Prevent a Tax Lien
In the last blog post, we discussed how to remove a Notice of Federal Tax Lien once it has been filed. Now we discuss how to prevent a Notice of Federal Tax Lien before it has been filed.
Just a reminder, a tax lien arises automatically by law when you fail to pay your tax debt upon notice and demand for payment by the IRS. Only you and the IRS know about it. To notify third parties, the IRS will file in the registry of deeds a Notice of Federal Tax Lien. So, when we talk about preventing a tax lien, we are talking about the Notice of Federal Tax Lien as there is nothing you can do to prevent the lien itself (the silent lien as we call it) but you may be able to prevent the filing of the Notice of Federal Tax Lien.
What Options Do You Have to Prevent a Notice of Federal Tax Lien From Being Filed
As I mentioned above, the IRS already has a lien once you fail to pay your tax debt. It will, however, not file a Notice of Federal Tax Lien in certain circumstances. This is not an exhaustive list but hits the high points:
- Outstanding balance of the tax debt is less than $10,000
- Outstanding balance of the tax debt is less than $25,000, if you enter into a streamlined, guaranteed or in-business trust fund installment agreement
- You need to enter into the agreement BEFORE the Notice of Federal Tax Lien is filed. After the notice is filed, you may be able to get it withdrawn in limited circumstances
- Filing the tax lien will hamper tax collections (sparingly granted – you need to really show that the IRS is better off not filing the lien – usually when need to get a loan or sell property to pay your taxes back).
- Filing of a bond or set up collateral agreement
You will note that the circumstances are very limited. The IRS believes that a Notice of Federal Tax Lien is the least intrusive way to collect back taxes and which in fact does encourage taxpayers to work something out with the IRS. Keep that in mind. We often will advise clients to pay their tax debt down to qualify for one the options above.
You do have a couple of other options that may allow you to “prevent” a Notice of Federal Tax Lien from being filed. I put “prevent” in parentheses as you only find out about the notice AFTER it has been filed. Still, you do have the right to request that the lien be withdrawn through a collection due process hearing. During the hearing you can argue that a government is better off without filing the notice. Good reasons are you will attempt to get a loan, sell assets, or you may lose your job.
You can also argue that you will suffer a severe financial hardship if the notice is filed. Normally, this argument is made when the taxpayer has no present ability to pay his or her back taxes and no assets of any value for the lien to attach to.
We love being able to request a collection due process hearing for clients as it freezes other collection actions (like bank levy or wage garnishment) and we can often work out some deal on how to resolve the tax debt through a payment plan, etc. We often do not put much faith in being able to lift the Notice of Federal Tax Lien for the reason we discussed earlier – the IRS feels tax liens (and the Notice of Federal Tax Lien) work.
Finally, if the Notice of Federal Tax Lien is filed in error or prematurely then you might be able to get help using the collection appeal program (called CAP) to have the notice removed. You are not able to discuss your particular situation only whether or not the Notice of Federal Tax Lien was filed properly. Not effective in many situations but it is nice to know it is there when it is needed.
Preventing an IRS tax lien is impossible but you may be able to avoid the Notice of Federal Tax Lien. It is not easy, often very hard, but we listed some options above. Harsh as this seems, I have said this several times in my blog posts about IRS tax liens, the IRS considers tax liens to be the most effective means to collect a tax debt. Options still exist though and if you think you may qualify you should talk with someone about your case.
I am Maine’s IRS Problem Solver. My firm helps Maine taxpayers in trouble. If you or someone you know in Southern Maine wants more information on how to resolve your unpaid taxes, please feel free to contact me directly at 207-502-7181 or by filing out my contact form. A Maine tax attorney can help you consider your options.