Frequently Asked Questions – FAQs
Liens give the IRS a legal, enforceable claim to your property as security for payment of the tax you owe. [A tax lien is the same concept as a mortgage on a residence. The money borrowed to buy the residence is secured by (or guaranteed by) the mortgage. If you were to default on your mortgage payments, the lender can come take the residence as repayment for the money borrowed.] In a similar manner, if you fail to pay your taxes, the tax liens give the IRS the legal right to take your property.
There are two lien terms that cause confusion with many taxpayers: a federal tax lien and a Notice of Federal Tax Lien. According to federal tax laws, a federal tax lien arises automatically when the following three events occur: (1) the IRS assesses your tax liability (usually when you file your tax return or when the IRS files a return for you), (2) the IRS sends you a “Notice and Demand for Payment”, and (3) you do not pay the full amount within 10 days after the IRS notifies you about the tax debt. The creation of a federal tax lien gives the IRS the ability to begin collection action against you. However, the creation of the federal tax lien is an internal administrative IRS process. In other words, nobody knows about it (besides the IRS and you).
If the tax owed is large enough, the IRS may file a Notice of Federal Tax Lien against you in the public records (usually your County’s Register of Deeds Office). The filing of a Notice of Federal Tax Lien by the IRS gives notice to the world that you owe federal taxes. By filing a Notice of Federal Tax Lien, your creditors are publicly notified that the IRS has a claim against all of your property, including property you acquire after the lien was filed.
The lien attaches to (is valid against) all of your property (such as your house, cars, and bank accounts) and to all of your rights to property (such as wages or accounts receivable).
A Notice of Federal Tax Lien may harm your credit rating and may affect your ability to get a loan, buy a house or a car, get a new credit card or a sign a lease.
A levy is a legal seizure of your property to satisfy your tax debt. Levies are different from liens in that the levy is the actual enforcement of the lien. In other words, while a lien is a claim used as security for the tax debt, the levy actually takes your property to satisfy the tax debt. A levy is a serious event in which the IRS takes legal ownership your assets (then sells the assets, if necessary, to pay the taxes you owe).
Levies can occur in many ways. If you do not pay your taxes, the IRS can sieze and sell property that you hold in your possession (your car, boat or house) or the IRS can take property that is yours but is held by someone else (your wages, bank accounts, retirement accounts, dividends, account receivable, etc.).
Fortunately, levies do not come “out of the blue.” The IRS is required to make you aware that they are about to take your property. Federal law requires the IRS to send you a “Final Notice of Intent to Levy and Notice of your Right to a Hearing.” This is a levy notice. This notice gives you important legal rights—and should not be ignored.
The best way to solve your tax problem is to get started immediately. The longer you ignore the problem, the worse the problem will get—and the fewer viable options you will have to solve your tax problem. To be honest, if you have a simple tax problem, you can probably solve it yourself. There is no law or rule that says that you must hire a professional to solve your tax problem.
First, you need to educate yourself by using websites like this one and the IRS website at www.irs.gov. Second, call the IRS to negotiate a resolution to your problem. What is a simple problem? If you owe the IRS under $10,000, you probably have a relatively simple problem and can solve it yourself.
If your situation is complicated or you do not want to take the time, effort and hassle to do-it-yourself (e.g., you do not want to talk to the IRS), you should hire an experienced tax professional to help you. While you could learn all the tax law and all the rules that govern the IRS collection procedures, it would take you an awfully long time to learn it all so that you could start using it in your own situation. An experienced tax professional will already know a tremendous amount about the tax law and the rules governing the IRS collection process. A good tax professional will use their skill, experience and knowledge to get the best result possible for you.
While it will cost you money to hire professional, it will be more cost effective in the long run. In most situations, an experienced tax professional can more effectively evaluate your options than you could yourself. Once an appropriate solution has been determined, an experienced tax professional can negotiate a lower payment with the IRS with significantly less time, stress and hassle than if you did it yourself.
You probably undertake a similar analysis when you decide whether to go see your doctor. When you get sick, do you attempt to treat yourself or do you go to the doctor? It depends on the seriousness of the illness. If you have the common cold (a simple problem that you can take care of yourself), you probably deal with it yourself—no doctor visit. But if you do not get better after a while or you have a serious illness, you seek professional medical help from your qualified, experienced doctor. Your doctor’s training and experience make him better suited than you to solve your medical problem.
We would suggest the same is true in solving your tax problem. While you can call the IRS and attempt to negotiate a settlement of your tax problem, due to your lack of knowledge about the process (and what the IRS is really looking for), it is highly likely that you would pay more than if you hired an experienced tax professional.
You should evaluate several aspects when choosing a tax professional to help you with your tax problem. First, whether or not you hire the Tax Solutions Law Firm, it is our very strong recommendation that you hire a local, experienced tax professional. With all the scams in the tax resolution industry, it is important for you to get to know the person who will be solving your tax problems. Second, choose a tax professional that has experience dealing with the IRS Collection Division.
There are many good people who prepare tax returns very well, but these same persons have very little or no experience in dealing with the IRS Collection Division. Choose someone that has the experience to get the best result for you. Third and just as importantly, choose a tax professional that you will enjoy talking with. This is the importance of being able to meet them before you hire them. At the Tax Solutions Law Firm, we meet or exceed all these criteria and would enjoy talking to you about your tax problems.