A federal tax lien is the IRS’s claim against a taxpayer’s property to secure the payment of a tax debt. It is analogous to a mortgage or deed of trust on a home. A mortgage gives the lender the right to look to the home to repay a loan if the borrower defaults. In the same way a tax lien gives the government the right to look to a taxpayer’s property to pay his or her tax debt.
In its own manual the IRS compares a tax lien to a sticker used by moving com-panies. The mover places a sticker on furniture, boxes, and other contents of a house when moving the owner’s property to another location. The sticker does not change the ownership of the property (it still belongs to the homeowner). The sticker identifies the property as having a claim against it.
This analogy is helpful but it places too
nice a face on the nature of a tax lien. After all a mover’s claim against the stick-ered property is simply to put it on a truck and drive it to another home. The IRS’s lien against a taxpayer’s property,
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What an IRS Tax Lien is and How it Works
C a l l T o d a y ! 5 4 0 - 4 3 8 - 5 3 4 4
What you have in common with Lionel Ritchie
Why the IRS files a Notice of Fed-eral Tax Lien
How tax liens affects your property rights
About your right to appeal the fil-ing of a tax notice
When the IRS forecloses
How to withdraw the IRS’s tax lien Strategies for resolving your tax
debt
About IRS levies
What is Inside?
Why the IRS Files a Notice of Federal Tax Lien
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IRS Tax Lien Trumps Tenants by the Entire-ties
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Will the IRS Foreclose Your Home?
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Taxpayer’s Collection Due Process Rights
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Your Not Alone: Ce-lebrities in Tax Trouble
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Withdrawing a Tax Lien 3
Seven Ways to Resolve Your Tax Debts
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Special Report:
IRS Tax Lien
TAX PLANNING AND IRS DEFENSE
What You Will Learn:
Wharton Aldhizer & Weaver, PLC 100 S. Mason Street
P.O. Box 20028
Harrisonburg, VA 22801 Tel: 540-438-5344
mvonschuch@wawlaw.com
Will the IRS Foreclose on Your Home?
Special Report: IRS Tax Lien Defense Page 2
Why the IRS Filed a Notice of Federal Tax Lien
It is the IRS’s policy to file a Notice of Federal Tax Lien for all taxpayers who have $10,000 or more in tax debt. This notice puts other creditors and potential buyers of a taxpayer’s property on notice of the IRS’s lien.
In Virginia, the IRS files notices in two places. For land and homes No-tices of Federal Tax Lien are filed in the land records with the Clerk of the Circuit Court in the county or city where the land or home is located. For other property, Notices of Federal Tax Lien are filed with the Virginia State Corporation Commission—you can look them up at www.scc.virginia.gov.
Do not confuse the existence of a tax lien with the filing of a Notice of Federal Tax Lien. The tax lien arises whether or not the IRS files a notice. The Notice of Federal Tax Lien merely puts third parties on notice that the IRS has a prior claim against a taxpayer’s property.
If you owe more than $10,000 in taxes, the IRS will File a Notice
of Federal Tax Lien.
IRS Tax Liens Trump Tenants By the Entireties
tireties. The husband’s creditcard company cannot obtain a lien against the farm or foreclose on the farm.
A federal tax lien, howev-er, defeats this special Vir-ginia protection. The federal tax lien reaches married For centuries Virginia law
has protected property owned by married couples. This type of co-ownership is call tenants by the entire-ties.
Entireties property is giv-en special protection from
creditors under Virginia law. A creditor of one spouse cannot collect its debt against the couple’s com-monly owned property.
For example, if married couple own their family farm as tenants by the
en-couples’ joint property even if only one spouse is liable for the tax debt. The tax lien also defeats state home-stead protections and other creditor exemptions as well.
The IRS has the power to seize tax-payers’ property in satisfaction of their tax debts—including their homes.
Before the IRS can foreclose its lien against a taxpayer’s home, however, it must first obtain an order permitting it to do so from a federal district court. The IRS does not have to prove that its only or best collection source is the taxpayer’s home. It must
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only show that it has followed all re-quirements for the foreclosure. Once the court approves the foreclosure, an IRS Revenue Officer will seize the home and sell it at public auction.
Also, if there is a deed of trust on the home or if someone else owns an interest in the home, the IRS must refer the tax debt to the U.S. Depart-ment of Justice. The governDepart-ment will
then file a lawsuit seeking a judgment against the taxpayer in federal district court and ask the court to order that the property be sold and the pro-ceeds of sale be divided among those who have an interest in the property.
As result of these procedural issues, foreclosing a tax lien on a home is usually the last collection action taken by the IRS—not the first.
Taxpayer Collection Due Process Rights
Within 5 days after the IRS files a Notice of Federal Tax Lien it must give the taxpayer notice of the filing and his or her collection due process rights. The notice must inform the taxpayer about: the amount of unpaid tax; the taxpayer’s right to request a Collection Due Process hearing; and the statutory provisions relating to the release of tax liens.
Taxpayers are entitled to challenge the filing of a tax lien or the seizure of property at a hearing before an independent IRS employee—that is, an employee who does not work in IRS collections. This is called a Col-lection Due Process hearing. The Taxpayer can also appeal the employee’s decision to the U.S. Tax Court.
Your Not Alone: Celebrities in Tax Trouble
Do you feel alone in your battle with the IRS? You are not.
The IRS filed over 700,000 notices of tax liens in 2012 and 600,000 in 2013.
Here are some of the more famous delinquent taxpayers that the IRS has filed liens against:
Lionel Ritchie: $1.1 million tax lien Nicholas Cage: $13 million tax lien
Lindsay Lohan: $140,000 tax lien Ozzy Osbourne: $2 million tax lien Rob Lowe: $269,000 tax lien Montel Williams: $1 million tax lien Pete Rose: $1 million tax lien Darryl Strawberry: $350,000 tax lien O.J. Simpson: $1.5 million tax lien
Withdrawing an IRS Tax Lien
Call for Free 30 minute Initial Consultation. (540) 438-5344
Timing is important. Collection Due Process rights permanently expire 30 days after the end of the 5-day period the IRS has to send its notice of a tax lien fil-ing.
At the Collection Due Process hearing the taxpayer can raise the following defenses to the IRS’s collec-tion accollec-tion:
1. The IRS’s failure to follow the law. 2. Offer collection alternatives. 3. Claim innocent spouse relief.
4. Challenge the underlying tax liability.
The filing of a Notice of Federal Tax Lien will adversely affect a taxpayer’s credit report. The lien will be removed once the tax debt is paid or once it becomes unenforceable due to the 10-year statute of limitations on collection. But, even after a Notice of Federal Tax Lien has been released, it will not be removed from the taxpayer’s credit report.
To have the lien removed from his or her credit report a
taxpayer should ask the IRS to withdraw the lien. If with-drawn, the lien will be treated as if it had never been filed. The IRS, upon request, will also inform all of the credit bureaus of the withdrawal.
The IRS will withdraw a notice of federal tax lien (1) for a prematurely filed notice; (2) if the taxpayer has entered into an installment agreement; or (3) to facility collection.
Removing or withdrawing a notice of tax lien is only part of a strategy for dealing with tax debts. Most taxpayers can live with the tax lien on their property. What they cannot live with is the IRS enforcing its lien by seizing bank accounts, investment accounts, business property, or homes. Any tax resolution strategy must both stop this collec-tion accollec-tion and resolve the taxpayer’s tax debts. Seven strategies often used to accomplish this goal include:
Offer in Compromise. An offer in compromise is a settlement of a tax debt for less than the full amount owed. It is difficult to qualify for an offer in compromise and it will take the IRS a very long time to accept or reject an of-fer. But, if a taxpayer qualifies, the IRS will forgive a portion of the debt
in return for the taxpayer’s agreement to pay the remaining balance of the debt in either a lump sum payment or monthly installment payment over a number of years. Filing an offer also stops the IRS’s collection action. Installment Agreement. An installment agreement is simply a pay-ment plan. The Taxpayer agrees to pay the full amount of the debt over time including all interest and penalties and, so long as payments are cur-rent, the IRS will stop its collection action.
Partial Installment Agreement. A Partial Installment Agreement is a special type of installment agreement that the IRS will enter into with taxpayers who are suffering from a severe financial hardship. Under a partial installment agreement, taxpayers are able to enter into a payment plan with the IRS that does not pay the full amount of the tax debt. If
the taxpayer complies with all of the terms of the plan, the IRS will forgive the unpaid balance of your tax debt. Uncollectable Status (Code 530). Uncollectable status stops collection action but it will not resolve the tax debt. Being in uncollectable status simply means that the IRS has determined that a taxpayer has no property or in-come from which it can collect his or her tax debt. The Service codes the taxpayer’s computer account as Code 530, which translates to uncollectable. If the IRS later finds that the taxpayer has property or income that can be used to pay his or her debt, the IRS will start collection action again and remove the Code 530.
Innocent Spouse Relief. Is the tax debt the result of your spouse failing to report income or claiming a deduc-tion that he or she was not entitled too on your joint tax return? If so, you may be eligible for innocent spouse re-lief. The IRS will either forgive a joint tax debt or reduce a joint debt by splitting it between spouses.
Penalty Abatement. Would it make a difference if the IRS just forgave the penalties and interest owned on the debt? It probably would. If a taxpayer has a good reason for not paying his or her taxes timely or filing a return timely, the IRS may forgive those penalties.
Bankruptcy. Bankruptcy is the most drastic action a taxpayer can take to get rid of his or her tax debts. Un-like the other methods outlined above, bankruptcy affects every aspect of a taxpayer’s financial life. It also may not be a viable option because only certain types of taxes are dischargeable in bankruptcy. If the tax debts are discharge-able in bankruptcy, however, the taxpayer may either be discharge-able to have them discharged or enter into a payment plan through the bankruptcy process.
Seven Methods for Stopping IRS Collection Action
Special Report: IRS Tax Lien Defense Page 4
An Offer in Compromise settles your tax debt for
1. What is an IRS Levy?
It is the seizure of property. The IRS has the broad authority to seize taxpayers’ property and wages to satisfy their tax debts. The IRS effects a levy on property in a taxpayer’s possession by seizing the property. The IRS ef-fects a levy on third-parties holding a taxpayer’s property (i.e., a bank accounts or wages held by an employer) by delivering a Notice of Levy to the third-party. Once such a notice is delivered to a third-party they have an abso-lute legal obligation to surrender a taxpayer’s property to the IRS.
2. What property can the IRS levy?
The IRS can generally seize all of a taxpayer’s property with few limitations. This includes wages, bank accounts, brokerage accounts, vehicles, business assets, etc. The IRS cannot seize unemployment benefits, workers’ compen-sation benefits, child support payments, certain federal retirement benefits, personal effects up to $6,250, and books and tools of a trade up to $3,125. The IRS also cannot seize a personal residence without first obtaining court approval.
3. Can the IRS garnish my wages?
Yes. Taxpayers’ wages are subject to levy by the IRS. The IRS, however, cannot levy the portion of a taxpayer’s wages equal to the standard deduction and exemptions he or she is entitled to.
4. Just received a Final Notice of Intent to Levy—what does it mean?
The IRS cannot levy a taxpayer’s property until 30-days after it notifies the taxpayer of its intent to levy. The Final Notice of Intent to Levy (IRS Notice Number CP 90) is meant to give the taxpayer this notice. This notice also triggers the taxpayer’s Collection Due Process rights. That is, his or her right to challenge the proposed levy at a hearing before an independent IRS employee.
5. How can I prevent the IRS from levying my property?
The IRS is prohibited from levying when: (1) a timely Collection Due Process appeal has been filed and while the appeal is pending; (2) the IRS is considering an offer in compromise; (3) the IRS is considering an installment agreement; or (4) the taxpayer files bankruptcy.
6. How long does the IRS have to collect my tax debt?
The IRS generally has 10 years from the date a tax is assessed to collect the tax. After this ten year deadline the IRS’s lien is of no effect and it can no longer seize the taxpayer’s property. This 10-year period is tolled (or extend-ed) for any time during which the IRS is prohibited from levying property. That is, while the IRS is considering an offer in compromise, installment agreement, or the taxpayer is in bankruptcy.
7. What does the IRS with property after seizing it?
The IRS is required by law to sell the property at a public auction. The IRS Property Appraisal and Liquida-tion Specialists (or PALS) handle the aucLiquida-tion process. You can visit PALS aucLiquida-tion website at:
http://www.treasury.gov/auctions/irs.
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however, gives it the right to seize and sell that property. A federal tax lien arises when a taxpayer owes a tax and fails to pay it despite being notified of the debt. The lien arises as of the date the IRS assessed the unpaid tax and continues for at least ten years or until the debt is paid in full.
The federal tax lien attaches to all of a taxpayer’s prop-erty and rights to propprop-erty. This means the IRS has a claim against all of the taxpayer’s real estate, personal property, stocks, bonds, retirement accounts, pension rights, payments that are owed to the taxpayer, and the taxpayer’s intangible property. The IRS has a lien against everything a taxpayer owns or may own in the future.
The IRS enforces its lien by actually seizing the proper-ty encumbered by its lien. It has broad power to do so under the Internal Revenue Code.
HOW TO CONTACT ME
Call Me: (540) 438-5344 Email Me:
mvonschuch@wawlaw.com Visit My Website:
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Tax Lien
About Matt Von Schuch
Matt Von Schuch is a CPA and a tax attorney. Before entering private practice, Mr. Von Schuch was a lawyer for the IRS. He served as a trial attorney in the Tax Division at the U.S. Department of Justice where he represented the IRS in federal district courts and bankruptcy courts throughout the country. Mr. Von Schuch tried numerous of collection cases for the IRS; most of which dealt with the enforcement of IRS tax liens. He brings his unique perspective to help taxpay-ers resolve and manage their tax debts.
Mr. Von Schuch is an attorney at Wharton Ald-hizer & Weaver, PLC in Harrisonburg, Virginia were he focuses his practice on tax matters, business law, and estate planning and administration. You can view his full biography at http://www.wawlaw.com/attorneys/ matthew-von-schuch or at his website www.mvstax.com (coming soon).
