Taxpayers receiving notice of an Internal Revenue Service lien should understand what the lien means and the steps to take to remove the lien. For a number of reasons, they should act to remove the tax lien as quickly as possible. Not only will the lien make selling the attached property difficult, but the IRS may also take possession of the property.
How a Lien Works
When a taxpayer owes back taxes, the IRS will send statements to the taxpayer requesting payment. After sending numerous letters requesting payment, the IRS may place a lien against the debtor's property. An IRS lien makes a claim on the taxpayer's property, meaning that the taxpayer cannot sell the property without the IRS releasing the lien. IRS tax liens are "blanket liens," meaning that they cover all of a person's property, including real estate.
Responding to Liens
Taxpayers should pay off the tax debt as quickly as possible to have the tax lien removed. Taxpayers who are facing financial problems can contact the IRS to work out a payment agreement for the back taxes. In some cases, the IRS may accept an offer in compromise, which is basically the IRS allowing the taxpayer to settle the debt for less than the full amount. The IRS will likely only accept the offer in compromise if it believes the taxpayer can't pay the full amount.
Selling or Refinancing the Property
The IRS may allow a taxpayer to refinance or sell a home that has a tax lien. Taxpayers experiencing financial problems and needing to refinance or sell the home may ask the IRS to discharge or subordinate the lien. Subordination makes the IRS lien a secondary claim on the home, with the mortgage being first. This means the mortgage holder can foreclose on the house and take the proceeds without the IRS getting its money first, which makes lenders more willing to approve the mortgage. To make the request, taxpayers must contact the IRS's Consumer Advisory Board. There is no standardized IRS form to request discharge or subordination.
Other Circumstances
For a variety of reasons, the IRS may place liens that are not proper. For example, if one spouse hides a tax problem that causes the lien, the other spouse may receive protection under the innocent spouse rule. If the taxpayer believes the tax debt is incorrect or if she did not receive prior notice of the debt, she may request that the IRS complete a new audit. Taxpayers may also file an administrative appeal of the debt with the IRS or hire an attorney to represent their interests.
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