What is Tax Lien?
Ordinarily, a lien is an act of possessing a thing which belongs to another person until a debt has been fully satisfied or paid. In legal jargon, a lien is defined as the legal right of a person against the property of another which serves as a security or a guarantee for a debt, or until the obligation is fully satisfied. In the United States, the tax lien is imposed by law, when taxpayer failed to pay the mandated taxes. Taxpayer’s property shall serve as a security for the payment of taxes, whether real or personal properties.
In the Internal Revenue Code, provides for the mandate and the enforcement of such law. It states that “If any person who is liable to pay taxes neglects or refuse to pay the same after demand, the amount shall be a lien in favor of the United States upon all property, whether real or personal, belong to such person.” This will serve as a protection of the government’s interest through your existing assets. The phrase “..upon all property..” includes the property of the taxpayer, the rights to a property and all properties which will be owned during the life of the lien. The IRS makes an assessment of your tax liabilities and the demand shall be in the form of written notice (Notice and Demand for Payment) to the taxpayer. Ten days from the date of the notice, if no action was done, the taxpayer is in default.
The IRS will then file Notice of Federal Tax Lien, a notice given to taxpayer’s creditors that the government has the legal claim over the properties of the defaulted taxpayer. In cases when there are two or more creditors, the first one who can perfect the lien takes the priority over the properties.
How Do You Avoid Tax Lien?
The best way to do is pay your taxes in full and on time. If payment on time is not possible, just don’t ignore the written notice you received from the IRS and within 30 days from payment, your property will be released from the lien.
If incapacitated to pay in full, make an offer with the following payment options until the tax debt is settled:
What is Tax Levy?
A tax levy is an outright seizure of the properties of a taxpayer for failure to pay the tax debt. IRS will seize all your properties including assets in possession of a third person, bank accounts, insurance proceeds, wages, personal residence and other assets that can satisfy the debt. Tax levy can be imposed without securing a judicial or court order since it is an administrative action by the Internal Revenue Service. Such fact, taxpayers in serious debt fear it the most. However, in order to comply with constitutional rights to due process, IRS will issue a “Notice of Intent to Levy” and a hearing will be held within 30 days before levy will be effective.
There are circumstances where a levy will be immediately effective after issuance of notice and demand for payment:
How Do You Avoid Tax Levy?
Like any other monetary obligations, payment on time and in full amount will help you avoid the circumstance. If impossible, you can make negotiations and offer a compromise. You need to get a tax professional, IRS may grant you an extension of 120 days to pay the balance. If the extension is not feasible, monthly installments is another option or you can request a currently not collectible status which means that you are temporarily unable to pay. It is also important that application for a compromise offer is not purposely done to delay the collection process, otherwise, the levy shall push through even if the offer was approved.
Tax liens and levies are government tools for on-time collection of taxes. The law must be followed by every person, always keep in mind all your obligations. And knowing your rights is equally important.
