If you’re like most people, your home is your biggest asset. So if you ever need to sell or refinance it, you’ll want to make sure the process goes as smoothly as possible. Unfortunately, IRS liens can create a lot of obstacles and frustrations for homeowners.
There are many complexities surrounding IRS liens. You may not be sure if you even have one. This article will explain the various options available to you. In addition, you will learn about the different types of settlements, including the IRS lien and the Payoff or Installment Agreement. Read on to learn more about these options and how they will affect your ability to sell or refinance your home.
What is an IRS lien?
An IRS lien is a lien imposed by law to collect delinquent taxes on real or personal property. It may also be filed for failure to pay income or other taxes. If you do not pay your property taxes, a tax lien can be placed on your property. A tax lien can affect any property.
A lien encumbers property, and the IRS may encumber all of the property owned by the debtor. This means that they have the right to sell or seize that property if the debtor fails to make payments. It encumbers all assets, whether they were owned at the time of the lien or acquired afterward. Even if the lien holder is bankrupt, he can still encumber the property.
How long does an IRS lien last?
A tax lien lasts ten years or until the debt is paid off. A lien can last longer, however, if the IRS decides to sue.
There are several ways to get rid of an IRS lien. First, you can find out whether you owe the money and evaluate your property exemptions. Second, you can file for bankruptcy if you are unable to pay. You can use Bankrate to compare rates for borrowers with challenged credit.
Tax lien versus tax levy
Another type of IRS lien is a tax levy. This is a form of a court order that gives the government a claim on a taxpayer’s property. It attaches to the property and is not publicly visible. In addition to personal property, the lien can also attach to real estate.
When you sell your home, the IRS will release the lien. If you are unable to pay the debt, the lien will be removed within 30 days.
Federal tax liens
While a federal tax lien attaches to your entire property, there are ways to get it removed from specific assets. This process is generally done when the government’s interest in the property is deemed of little or no value, and you want to sell the property.
Traditionally, the lien will be removed after the sale, but you can also try to get an IRS discharge of unpaid taxes if you are able to sell your property for less than the lien. The IRS will remove a federal tax lien if you can prove you have paid off the debt.
Occasionally, the IRS will agree to this request if you have other property worth more than the tax liability.
Nevertheless, you may have to hire a tax attorney if you plan on filing for the discharge. A tax lien is not a good thing to have in your home. You may be able to get a discharge if your property is worth twice as much as the debt.
Applying for a payment plan
Another option is to apply for a payment plan with the IRS. This payment plan requires you to apply online or by mail and can be applied for over the phone or in person. However, you should remember that you must have less than $50,000 in debt to qualify for this type of payment plan.
If you do not qualify, you can apply for an offer in compromise, which is a way for the IRS to settle your debt for less than what you owe. Ultimately, a payment plan can eliminate your Federal tax lien.
What does this mean for selling or refinancing my home?
Once a tax lien has been placed on your property, it can prevent you from selling your home and making a new mortgage. As a result, you may have to pay high-interest rates to keep the property.
It can also increase the chance of foreclosure. In addition, these liens can negatively impact the neighborhood and surrounding homes by depressing spending and contributing to the problems associated with vacant and abandoned properties.
What is an installment agreement?
An installment agreement is a type of payment plan approved by the IRS. The payment plan includes a minimum monthly payment and is based on the taxpayer’s income, assets, and financial situation.
Under the current rules, the minimum payment is required to be at least $250. If the taxpayer fails to meet this payment level, the IRS will likely nullify the agreement.
In this case, the IRS will notify the taxpayer of default by sending a CP523 notice, or notice of intent to cancel the agreement. The notice will also let the taxpayer knows of collection actions, including federal tax liens, levies, garnishments, and the like.
An Installment Agreement is a good way to get your tax debt under control. You will avoid failure-to-pay penalties and aggressive collection activities. You will also demonstrate to the IRS that you are willing to work with them to settle your debt.
Do not miss your payments or you could end up owing more
However, it is important to remember that even if you are able to meet your monthly payments, the IRS will still apply interest and penalties to the total amount of the debt, so paying less than the original amount will not be a good idea.
An Installment Agreement can be set up in such a way that the monthly payment will be the same as a note payment. This is equivalent to the purchase price plus interest, which are paid in equal and regular payments over a certain amount of time.
There may also be an option to pay the debt in full after five years or at every five-year interval thereafter. Once the payment plan period is up, the remaining tax problem will be forgiven.
What is a payoff agreement?
A payoff agreement is an informal contract, where the borrower agrees to pay off their entire debt in full. A borrower can enter into a payoff agreement if they owe $1000 but can only afford to pay $500.
While a payoff agreement isn’t illegal, it is still an option that requires borrowers to understand the consequences of stopping their payments.
Hiring a tax attorney to assist in an IRS tax lien
In addition to the tax debt, taxpayers can also face liens on their property. One option is to hire a tax attorney to request that the IRS subordinate the lien to the lender’s security interest.
This puts the lender’s security interest in the first place. However, the IRS lien remains in place and encumbers the property.
Does a tax lien affect my credit score?
A tax lien is the result of a missed tax deadline and is an ominous mark on your credit score. Although it can hinder your ability to sell or refinance your home, it does not mean that it is impossible.
The IRS can still seize your property to pay off your debt. Fortunately, if you make the required payments on time, the IRS will not enforce their lien on your home.
Don’t wait, take action
When you receive a Notice of an IRS Tax Lien, it is important to act as quickly as possible. This notice will notify your creditors that the IRS has a lien on your home. If you don’t respond promptly, the lien can worsen and affect your ability to sell or refinance your home. Regardless of the situation, it is important to hire a tax attorney to assist in an IRS Tax Lien if you are facing a major debt problem.
Talk to an experienced tax attorney today
If you find yourself in the unfortunate situation of being faced with a tax lien, don’t worry.
At Damiens Law, our Mississippi tax lawyers have been helping our clients resolve their tax concerns for over a decade.
We have offices in Memphis, TN, and Gulfport and Ridgeland, MS. We are prepared to evaluate your unique tax situation, help you construct a plan for resolving the matter, and represent you during correspondence and meetings with the IRS.
For a free consultation or more information about resolving a tax lien, contact Damiens Law today at (228) 300-2906.