While the IRS can often be surprisingly reasonable when dealing with tax issues, dealing with this monolithic government agency can still be a stressful experience. Unfortunately, the situation can often be far more stressful when you owe more on your taxes than you can pay. The IRS has numerous options for collecting overdue taxes, but liens can be among the most frightening.
The good news is that a lien doesn't mean the IRS is about to take your property. Instead, a lien is a claim against your property. In the case of a federal tax lien, this claim can extend to all of the property you own. You might wonder what to do next if you've received an IRS lien notice. This guide will help explain how this lien can affect you and what you can do to resolve your debt.
Why Should You Care About a Lien?
If the IRS isn't taking your property, do you even need to care about a lien? The answer is complicated, but you generally shouldn't ignore a lien. First and foremost, a lien can impact your ability to sell any property you own. For example, you won't be able to sell your car, home, or other large assets without first using the proceeds to pay back your debt.
A lien can also potentially impact your credit, although the IRS will not directly report your lien to the credit bureaus. Instead, the IRS files a public notice which most credit reporting agencies will eventually find. Once this lien appears on your credit report, it can seriously jeopardize your ability to receive loans or credit. An IRS lien can even impact the creditworthiness of any businesses you own.
What Should You Do About an IRS Lien?
Unfortunately, the IRS does not need to notify you if they intend to file a lien against your property. Instead, you may receive Letter 3172. This letter notifies you of the lien filing and your rights regarding an appeal. Depending on the process, you might receive this letter before the IRS files a lien or within a few days of filing.
Once you receive this letter, you have a right to a hearing to appeal the lien. If you can, the best option is always to pay off your tax debt. The good news is that paying off your debt will quickly clear the lien. On the other hand, you may be unable to pay, or paying your debt may leave you in severe financial difficulties. In these cases, you should speak with a professional.
When Should You Talk to a Tax Professional?
A tax professional can help you through the appeal process and look for alternate solutions to resolve your tax debt. Appealing a lien generally will not remove any part of your tax debt. Instead, the appeals process will primarily focus on arranging alternative payment options, such as a payment plan. In some cases, you may be able to work out an offer in a compromise to pay a lesser debt.
Living with a federal lien can have numerous downsides, so a notice to file a lien is not something you should ignore. If you cannot pay off your debt to quickly remove the lien, speaking to a tax professional is the next best bet to minimize your tax debt's impact on your life and finances. For more information on IRS lien help, contact a professional near you.