IRS Levies and Leins Archives

IRS Lien Basics

A lien is a legal claim or right against someone else’s property, usually for the payment of a debt. The IRS can place a lien on your property if you owe taxes and have failed to pay them. This can be a very stressful and difficult situation to deal with, but it is important to know your rights and options if you find yourself in this situation.

If your situation with the IRS has gotten to this stage, it’s time to contact a tax professional. They can help you to determine what your options are in dealing with the IRS to minimize their impact on your life.

When does the IRS File a Lien?

The IRS has the power to issue a lien when taxpayers fail to pay back taxes, which must be paid within 10 days of the IRS sending the taxpayer a final notice of intent to levy. If you fail to pay the taxes within 10 days, the lien will be automatically filed with the County Recorder’s office. The IRS may also issue a lien when a taxpayer fails to respond to an IRS request for information or fails to make an installment payment promised under a payment plan. A lien might also be issued if the taxpayer violates the terms of an offer in compromise or fails to provide information the IRS is requesting to verify a claim of innocent spouse relief.

After the IRS files a lien, what happens?

When the IRS files a lien, it will make a public record of the lien and its amount. This will be included on your credit report, which means that your credit score will be affected. The IRS will send you a letter, called a Notice of Federal Tax Lien, detailing how much is owed, when it is due, information about payment options, and how the lien affects your rights. The IRS may take other collection actions such as wage garnishment and seizing funds from your bank accounts.

While the IRS has the right to seize and sell your property, they only take that action in extreme cases. They do not want to have the cost of the seizure, securing, and finding a buyer for your stuff. Instead, they would rather wait and seize any proceeds should you sell your property.

How can I get rid of an IRS Lien?

The most effective way to get rid of an IRS lien is to pay the debt in full. Once the debt is paid, the IRS will remove the lien from the public record. You can also request a withdrawal of the lien in certain cases. This is when the lien is withdrawn, but the debt remains. Generally, your debt must be less than $25,000 or you have a good reason why it is in the government’s best interest to make the withdrawal.

How long does an IRS Lien stay in place?

IRS liens stay in place until the tax debt is paid in full or the statute of limitations expires. The statute of limitations is a time frame of 10 years from the date the taxes were assessed. This date will be extended if collection activities are suspended due to actions such as filing bankruptcy or requesting an Offer-in-Compromise.

To wrap things up

The initial impact from a federal tax lien is a hit on your credit report. Usually, nothing else happens until such time that you want to refinance or sell your home. The IRS will negotiate with you about subrogating their lien so that a refinance can happen provided you give them some or all of the cash proceeds. The IRS in almost all cases will grab your share of the proceeds from the sale of your home or another real estate.

IRS Levies and Social Security Benefits

The IRS can levy social security benefits. Even worse, that levy can continue even though the statute of limitations has expired. The question is how often does the IRS levy social security payments? And what can you do if it does?

The IRS annual statistics report does not drill down anywhere close to the level needed to answer the first question. But it does seem to be exceedingly rare and only applied to tax protestors. This is in alignment with IRM 5.11.6.2(1) “Use discretion in determining if retirement income should be levied“. And more specifically, IRM 5.11.6.2.1(4) “Use discretion in determining whether a levy on Social Security benefits is appropriate under the circumstances.”

However rare, what can you do about it? If the levy was correctly applied before the statute of limitations runs, then the levy will continue after the expiration. The authority for this is Treas. Reg. § 301.6343-1(b)(1)(B)(ii) which provides that “a levy reaches all property rights at the time the levy is made, including the right to receive payments at some point in the future, and will not be released under this condition unless the liability is satisfied.” This regulation leaves you with only one option, you must make a deal. Specifically, an Offer-In-Compromise proving that the seizure of your retirement income places you in the category of “Economic Hardship”.

Economic hardship cases are usually hard to get through at the collections level. Expect a trip to Appeals.

IRS Liens are “Self-Releasing”

The IRS issues millions of liens on tax debtor property every year. Unlike other creditors, IRS liens are “self-releasing”. There is a highlighted box on each Notice of Federal Tax Lien that states that this notice will also operate as a lien release one day after the Last Date for Refiling. The problem is that most people, including financial professionals, do not read this and keep looking for a formal release that is not coming.

The easiest way I have found to handle the problem with bankers and closing agents expecting a formal withdrawal is to send them a copy of the lien notice and highlight in red the already highlighted box. You can also send them IRS Publication 1468 which explains the self-releasing nature on page 4.

The IRS will formally withdraw the lien notice if the debt is cleared prior to the Statute of Limitations. This is usually done automatically within 30 days after the debt has been paid off with money or an Offer-in-Compromise. There are also other reasons they will issue a withdrawal if the government can be convinced it is in their best interest.

Are Crypto Currencies Safe from the IRS

I represent taxpayers in Gainesville and the state of Florida who has tax issues with the IRS.

IRS Levies

At this point in time, I don’t see how the IRS could levy a cryptocurrency account. The owner has the key codes. Absent these codes, it’s not likely the IRS could break the encryption. But there is a much bigger danger to crypto owners.

The Real Danger

That danger is JAIL TIME. Signing a tax return means you understand that the information is to the best of your knowledge under the penalty of perjury. The first question on the form 1040 for the last few years has been “did you receive, sell, exchange, or otherwise dispose of any financial interest in a virtual currency?” Answer no when you have one of these accounts makes it an easy referral for criminal prosecution when the IRS later determines that you do have such an account.

How it Works

The IRS successfully summoned the records of Coinbase for 2013-2015. The summons was upheld in court. Subsequently, the IRS has been negotiating with other virtual currency companies to gather more information about their users.

Here is the kicker to keep in mind. You sign a form 1040 in the current year and deny that you have any virtual currency. Three years later the IRS is finally able to crack the management of the company that provides you with access to your account. They feed the new data into their computers and then do a search for unreported transactions along with the negative answer on question number 1. Outcomes your name and the computer’s guess at the underreported tax. There is no statute of limitations on fraud. Worse, your defense attorney has next to nothing to work with other than some lame excuse about forgetfulness.

How Big a Risk?

Think this unlikely? The 2021 New England Tax Representation Conference included IRS statistics. Criminal referrals are up over 80% and most of that is related to the Coinbase summons. The idea that in the world of connected data servers that your information cannot be obtained by some government entity forever and ever is a pipe dream.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

Get an IRS Tax Lien Released

Whenever you owe the IRS on a tax debt, there is an automatic statutory lien created by law. The problem for other creditors is that they won’t know about this claim on your property. The answer to that problem is the Notice of Federal Tax Lien which is filed in a courthouse near to the taxpayer’s residence. The big question for anybody receiving one of these notices is “how do I get rid of it?”

There are various ways to get an IRS to release a lien on your property.

Pay the debt in full – not a great answer if you don’t have the cash
Discharge of property – the IRS releases a specific property from its general lien on all assets of the debtor
Subordination – the IRS allows other creditors to move ahead of their claim on a specific property
Withdrawal – the IRS releases the lien even though the debt is still owed.

Payment in Full

Of course, this is the IRS preferred reason for issuing a Certificate of Release of Federal Tax Lien. The IRS has an automated system that should issue this certificate within 30 days of receiving final payment or the discharge of the debt due to the Statute of Limitations running out.

Discharge of property

Sometimes it is in the best interest of the government to release the lien against a specific property. The IRS guidelines allow them to do this when the value of remaining property under lien is at least 2 times the taxpayers debt. Other reasons include an agreement to hold the proceeds of any sale in trust for the United States.

Subordination

This is another one of those things that require the situation to be in “the best interest of the government. This is generally what happens when the IRS wants the sale to go through, but other creditors will block it unless they get their cut first.

Withdrawal

The IRS can withdraw their public Notice of Federal Tax Lien. This usually happens when the TP enters a Payment Plan that will allow the government to receive full payment in 60 months or less. There is a Fresh Start program that allow some people with tax debts of $25,000 or less to qualify for withdrawal.

The IRS Notice of Federal Tax Lien has some large repercussions that will incentive you to get a release. The biggest one is usually the impact on your credit rating. The second one is the hassle of having to deal with yet another creditor when selling a property. When in doubt as to your qualifications for one of the above outs, it’s one of those things where there is no downside to asking.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

How IRS Levies Work

I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS.

The IRS Tax Levy is the method used to actually seize a taxpayer’s assets in order to collect on a tax debt. These levies happen when the taxpayer ignores the IRS about the debt, or there is a breakdown in the negotiations between the two parties. The Levy is the IRS’s hammer and they know how to use it.

The process is straight forward and happens after the IRS has sent various notices trying to collect on the debt. The process itself is as follows:

The IRS issues a Notice of Intent to Levy – you have 30 days to respond and either request a Collection Due Process hearing or negotiate some other deal such as a Payment Plan.
The IRS will next issues a Notice of Levy to any third party who is holding the taxpayer’s assets such as banks, IRA trustees, employers and customers in the case of contractors.
Banks will hold the money in your account at the time of levy for 21 days before sending it to the IRS. This means that it still might be possible to work out a deal and get the levy released before the money is sent to the IRS.
Employers will receive a “Continuing Levy” for wages and commissions which stays in place until it is released by the IRS. This type of levy is designed to hurt and drive the taxpayer back to the bargaining table.

What should you do if you have a received a Notice of Intent to Levy?

The time for inaction is over. You need to contact the IRS and make some sort of arrangement with the IRS or request the Collection Due Process hearing. Hiring an attorney, CPA, or enrolled agent who specialize in these procedures is probably your best plan of action.

Yes Dad, IRS CAN Levy Pensions

A common belief is that pensions, IRAs, and 401Ks are safe from all creditors. When it comes to the IRS—don’t kid yourself. The IRS CAN levy pensions. While it can’t force you to liquidate such accounts, it can levy any proceeds from them. Here are three ways to shelter your retirement funds:

Go with a Payment Plan

The easiest (proactive) way to protect your pension, IRA, or 401K when you the IRS is to sign up for an IRS installment agreement so the IRS does not issue the levy in the first place. This is what most people do, and the long-term monthly bite may not be too painful— but it’s not the only option.

Negotiate with the IRS

A more attractive, more complex alternative is to make an Offer-in-Compromise (OIC) to clear your tax debt for less than you owe. Despite what you may have heard, the IRS does not ‘nonchalantly’ clear tax debts for ‘just pennies on the dollar’ but the agency will accept an offer that represents their best bet to collect from you, based on a formula that takes into account your current assets and future earnings potential.

Lump-Sum Out for Fixed Income Retirees

Retired people living on a fixed income typically have little chance of ever paying off their tax debts in full. The IRS is often willing to take a smaller lump sum payment in these cases in order to get the debt off the books.

If you or someone you know has received a Notice of Intent to Levy or has some other federal or Florida state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.

What about IRS Levies?

I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS. A Federal Tax Levy is the actual seizure of a taxpayer’s assets because of past-due taxes. Usually, it involves a bank account or wages.

There are two types of Levy. A Regular Levy is one that seizes what the taxpayer owns at that moment such as cash in a bank account. The other variation is the Continuing Levy which stays in place to continue to grab wages as they are earned.

The IRS and Qualified Plans

One of the big myths is the idea that the IRS cannot Levy an IRA, 401(k) or other qualified retirement plan. While it may be true that other creditors can’t reach these funds, the federal government and its agencies are exempt from this restriction. If the taxpayer has the right to liquidate one of these accounts, then the IRS has the right to step into their shoes and grab the funds. Worse, the 10% early withdrawal penalty still applies.

What to Do

What is the best technique for avoiding one of these levies? It’s simple, don’t ignore IRS notices. Contact them and do your best to resolve the situation. As long as you are providing returns and information to the IRS to resolve the situation, there is no need for the IRS to resort to their big hammer — the Levy.

Should the IRS Levy your bank account or your wages, not all is necessarily loss. Your bank or employer is required to hold the funds for 21 days before sending it on to the IRS. If you move quickly, you can begin negotiations with the IRS and perhaps get the Levy released before the money is paid over to the IRS.

What about IRS Liens?

I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS. IRS Liens are a big part of the IRS Collection Division’s tool kit for collecting back taxes. If a taxpayer owes money to the IRS, there is an automatic tax lien against them, all of their assets, and any future assets that they might acquire.

What the IRS Must Do

The IRS must have assessed the tax liability,
The IRS must have given the taxpayer notice of the amount assessed and has demanded payment, and
The taxpayer has failed to pay the amount assessed within 10 days after notice and demand.

Public Notice

These silent liens are not a big problem. But, when the IRS goes public your life cam become miserable in a hurry. They do this by filing a Notice of Federal Tax Lien at the courthouse where you own real estate. The result is an immediate hit on your credit rating. Additionally, you will receive a deluge of mail from national companies claiming that they can make a deal with the IRS for pennies on the dollar. Unfortunately, Offers-in-Compromise to minimize the debt are formula driven. This formula considers the taxpayer’s equity in the assets they own plus their expected future earnings. Superior negotiation skills has very little to do with it.

What to Do

If you receive a Notice of Federal Tax Lien, your best option is to contact the IRS and resolve the issue. Resolution will come in the form of an Offer-in-Compromise or a payoff. It usually takes the IRS a minimum 30 days to issue the lien release.

If you or someone you know has received a Notice of Federal Tax Lien or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@taxrepgainesville.com.