When you fail to pay the taxes you owe to the government after the Internal Revenue Service sends you a bill with an explanation for how much you owe, the tax collection agency could place a lien against your property. This lien essentially protects the government’s interest in your property, which could include personal property, financial assets, automobiles and real estate including your primary residence.
There is no question that facing a federal tax lien can be scary for any taxpayer. That’s because a lien could affect you in many ways. For one, it could attach itself to all of your assets and future assets you might acquire for the duration of the lien. You may not be able to get credit or your ability to get credit may be limited until the issue is resolved. In addition to personal property, a lien also attaches to all business property including accounts receivable. Your tax debt and tax lien may continue even after you file for bankruptcy protection.
Understanding the Solutions
Once the IRS has enforced a tax lien, it can be removed or resolved only after you pay your tax debt. But, this could be done through a tax lien release or a tax lien withdrawal. While the consequence of both processes is the same, the manner in which a federal tax lien is removed could have a major impact on your credit ratings.
Withdrawal: The IRS files what is known as a Notice of Intent to File a Tax Lien before it attaches a lien to your assets. When this notice is withdrawn, the agency is essentially taken a proactive step to remove the lien even before it is actually placed. This type of withdrawal occurs when you as the taxpayer take the initiative to repay your tax debt in full as soon as you get the notice in the mail. Once your tax bill has been paid in its entirety, the IRS is required to withdraw its intent to file a lien within 30 days of your payment.
Release: This is issued when a taxpayer fully repays the tax debt, but only after the lien has already been placed on his or her account. A tax lien release happens when a taxpayer fails to respond to the IRS’s notice of intent to file a lien and the federal agency goes ahead to place the lien on the taxpayer’s account. You may also be able to enter into an agreement with the IRS where you can pay off your tax debt with installments over a period of time. In general, the IRS will accept payments from taxpayers to resolve a tax debt.
Which is the Better Option?
Generally speaking, a tax lien withdrawal is a far better option for taxpayers compared to a tax lien release. This is because a withdrawal takes place before the lien actually attaches itself to your assets. As a result, your credit rating does not suffer because credit agencies don’t get notice of the lien until it is actually placed on your account. However, a tax lien release takes place after the IRS enforces the lien. So, your credit report will contain details about the lien for up to seven years, which could have an adverse impact on your credit rating.
If you are overwhelmed by tax debt and are wondering about potential options, our Maryland IRS tax lawyers can help you examine possible solutions. We can help provide you with more information about the options out there and help you arrive at a decision that will produce the best possible outcome.