Welcome to our Ask Phil series, where each week our lead Tax Attorney, Philip Hwang will be answering your questions about various tax topics such as IRS enforcement, liens and levies, tax scams, and more. With Phil’s extensive background as a tax attorney, you won’t want to miss this valuable information!
Today, Phil discusses liens, including when to worry about them and how to get them removed.
What is a Tax Lien?
A lien is a legal claim against all of your property when you fail to pay a tax debt. A lien is private information only known to you and the IRS. That is until they file a Notice of Federal Tax Lien. This essentially means that the IRS alerts all creditors that they have the first claim over all of your assets, from property to vehicles to bank accounts. At this point, the federal tax lien becomes public information, meaning that anyone can find out about your tax debt. This can affect your access to credit, business opportunities, and even employment.
How to Get a Lien Removed
Once a federal tax lien is in place, the best way to get it removed is to pay your tax debt in full. Once the balance is paid in full, the IRS typically releases the lien within 30 days. However, sometimes other options may be available. For example, a process called lien subordination allows creditors to outrank the IRS. This basically makes it possible for you to refinance your home. It’s important to note that this does not remove the tax lien attached to your property. To find out if you’re eligible for lien subordination, you should file IRS Form 14134, Application for Certificate of Subordination of Federal Tax Lien, with the help of a knowledgeable tax professional.
Tune in next Friday as Phil covers the important topic of penalties and interest!
If the IRS Has a Lien on Your Property, Contact Us Today for a Free Consultation
It can be difficult and frustrating to deal with tax debt. You might be concerned about whether the IRS has the right to seize your assets if you owe taxes to them and haven’t taken steps to address the debt. In this article, we will examine the scenarios in which the IRS may lawfully seize your assets to satisfy a tax liability and when they may not.
Can the IRS Seize My Assets?
The simple answer to this question is yes.The IRS is legally able to seize your assets in order to pay off a tax balance you owe. However, it is crucial to remember that the IRS normally views asset seizure as a last resort. Before initiating asset seizure, it is your taxpayer right to be notified. This is so you can attempt to correct the issue, perhaps with an installment agreement or offer in compromise. If you do not respond to IRS notices, they will impose a tax lien on your property. Only after this and a final warning will the IRS seize any assets.
Which Assets Can the IRS Seize?
Almost any item that has worth or equity and may be sold for cash can be seized by the IRS. Some of these assets can include:
Property: The IRS can place a lien on your property, such as your house or other real estate, establishing their legal claim to it. In some situations, they may seize and sell the property to recover the debt.
Vehicles and Other Personal Assets: To satisfy your tax burden, the IRS may confiscate and sell your vehicles, boats, jewels, or other personal assets.
Bank Accounts: The IRS has the authority to levy funds from your bank accounts in order to satisfy your tax debt. Bank levies are one-time only. This means the IRS can only take what is in the bank account at the moment. You can deposit and withdraw funds from the account in the future. However, the IRS can always issue more levies in the future.
Retirement Accounts: The IRS has the legal authority to seize your 401(k) and other retirement savings, including self-employed plans. Although these accounts are shielded from creditors, the IRS has the legal right to confiscate funds from your retirement savings in order to recoup back taxes owed.
Life Insurance: In certain cases, the IRS can even seize life insurance benefits. If you are the beneficiary of a life insurance policy and you owe the IRS, the IRS can seize those proceeds. Additionally, if you have a life insurance policy with no beneficiary named and you owe the IRS, the IRS can seize the policy funds before they are distributed to your next of kin.
Wages: The IRS has the authority to issue a wage garnishment, which means that they can legally order your employer to withdraw a percentage of your salary to pay off your tax debt.
Which Assets Can the IRS Not Seize?
In general, any asset that is not necessary for your well-being and shelter (or the survival and shelter of your family) may be confiscated in order to pay the IRS what you owe. This can include:
Unemployment benefits
Worker’s compensation benefits
Work tools needed for your job
Household furniture valued below a certain amount
Some disability payments
Court-ordered child support payments
Some pension or annuity benefits
Clothes and textbooks
Assistance provided by the Job Training Partnership Act
How Can I Protect My Assets from Being Seized by the IRS?
The good news is that an IRS asset seizure will never come as a surprise. Once you are aware that you owe the IRS, you should get to work on resolving the issue. However, we know that sometimes this isn’t always possible. You may have already received multiple IRS notices, and maybe one was an Intent to Levy. It’s not too late to get help from the nation’s leading tax resolution firm. Optima Tax Relief has over a decade of experience helping taxpayers with tough tax situations.
While it is not unusual, getting a notice from the Internal Revenue Service (IRS) can be a stressful event. Every year, the IRS sends notices to millions of Americans. While some of these notices can be purely informational, others might call for prompt action. Each IRS notice has a code assigned to it. It’s usually located on the top or bottom right-hand corner of the written notice. Here are some of the most common IRS notices and letters, what they mean, and how to respond.
IRS Notice CP2000
IRS Notice CP2000 is sent to taxpayers when the income or payment information the IRS received from third parties does not match what is reported on the taxpayer’s tax return. This is important because it can result in an increase or decrease in the amount of taxes owed. If you get a CP2000 notice, you should respond as soon as possible. The notice will include a response deadline and directions on how to respond. In general, you have 30 days from the notice’s date to reply.
You have two choices when responding to the notice: accept or deny the suggested changes. You can sign the response form and send it to the IRS along with any additional taxes due if you accept the suggested changes. If you disagree with the changes that have been suggested, you can back up your arguments with evidence and explain why you think the changes are inaccurate. Remember that additional taxes, interest, and penalties may apply if you don’t respond to the CP2000 notice.
IRS Notice CP90
IRS Notice CP90 is a formal notice of the intent to levy along with a notice of your right to an appeal. The IRS will send you one final notice before beginning collection efforts against you. The notice advises the taxpayer that the IRS plans to seize their assets, such as bank accounts, property, wages, and other sources of income, in order to pay the back taxes owed.
It is crucial that you act immediately if you receive a CP90 notice. After receiving the letter, you have 30 days to contact the IRS. You can choose to pay the tax debt in full, set up an installment agreement with the IRS, or request a Collection Due Process (CDP) hearing.
IRS Notice CP523
IRS Notice CP523 is a notification of default on an installment agreement by missing one or more monthly payments. The notice will also warn of a potential seizure of your assets because of your default.
If you receive this notice, you should contact the IRS within 30 days of the date of the notice. You can also restore the installment agreement by making the missed payments, but you may be required to pay a reinstatement fee. If you are unable to make the current payments, you can ask for a modification to the payment plan. This could entail increasing the payment duration or decreasing the monthly payment amount.
IRS Notice CP14
IRS Notice CP14 a letter from the IRS informing you that you have unpaid taxes on your federal income tax return. The notice will include the amount of tax owed, plus any penalties and interest that have accrued. If the details in the notice are accurate, you need to repay the debt as quickly as possible. Instructions on how to make the payment, including online payment choices, payment plans, and other payment methods, will be included in the notice.
You might be able to ask the IRS for a payment plan if you are unable to make the full payment. The notice will outline how to submit a payment plan request. Additionally, you can contest the notice if you think it is incorrect by formally protesting it to the IRS. To substantiate your argument, you must present supporting evidence.
IRS LTR3172
IRS Letter 3172 is a notice of federal tax lien filing (NFTL). The IRS files this public document to inform creditors that the government has a claim to your interests in any current and future property and assets. Although NFTLs are no longer included in credit reports, they may still have an impact on your ability to receive credit if a potential creditor finds out about them from other sources, like public databases.
This letter advises you of your right to appeal the filing of the NFTL. You have 30 days from the letter’s delivery date to ask for a hearing to contest the lien. Alternately, you could also use the “Collections Appeals Program,” which enables you to challenge the lien. Although this approach can be quicker than the Due Process hearing, you are only able to contest the manner of collection rather than the underlying causes of the taxes owing.
What To Do If You Receive an IRS Notice
Receiving an IRS notice or letter in the mail can lead you to scramble in worry. However, the most important thing to do when receiving a notice is to check for its validity. Phony letters and notices are sometimes sent to innocent taxpayers in order to obtain personal information or payments. If you receive a suspicious letter or notice claiming to be from the IRS, you should confirm it is not fraudulent by contacting the IRS directly. If the notice turns out to be credible, you should understand the severity of the situation but also know you have options and you do not have to tackle your tax issues alone. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
We often discuss IRS tax audits, but you can just as easily be audited by your state. Like an IRS audit, state tax audits can be stressful and intimidating for taxpayers. But what triggers a state tax audit? Is it less severe than an IRS audit? Would a state tax audit result in an automatic IRS audit? Here’s what you need to know about state tax audits.
What is a state tax audit?
A state tax audit is an audit performed by your state’s Department of Revenue because they believe there is a discrepancy on your state tax return. It is no less severe than an IRS audit and can result in financial and legal consequences. During the audit, your state will review your state tax return to verify that your reported income and deductions are correct. Typically, your state will send you a written notice in the mail to inform you of the audit. The notice should include the tax years they plan to review. It will also note any information you will need to provide and their contact information. You can opt to have an accountant or tax attorney represent you during the audit or proceed without one.
Once the audit is completed, your state will send you a written notice of the results. The results can lead to the acceptance of your state tax return with no further action needed. However, it can also result in taxes and penalties owed. The taxpayer may be entitled to appeal the judgment if they don’t agree with the audit results. Depending on the state, the appeals procedure may include a hearing before an administrative law judge or an appeals board.
What triggers a state tax audit?
You should be aware of frequent errors that can result in a state tax audit. These can include:
Failing to record all income. You are required to report all income, including self-employment, rental, and investment income. Not doing so is one the fastest ways to trigger an audit.
Being a nexus.If your business is a nexus, or a company that has a presence in one or more states, you might be at risk of a state audit. Each state will want to ensure you are complying with their individual tax laws.
Failing to report use tax. If you purchase taxable items in one state and intend to use, store, or consume them in another state, you must pay use tax in your own state. For example, if you purchase a car in a state that does not charge sales tax, but plan to use the car in a state that does, you must pay use tax on the purchase price of the car in your state.
Being a sole proprietor. If you are a sole proprietor and prepare your own tax returns, you may be viewed as more likely to make a mistake when filing.
Misreporting data, math mistakes, incomplete state tax forms, excessive deductions, and failing to file your state tax return on time are some more common reasons for state audits.
Will a state tax audit result in an automatic IRS audit?
Your biggest worry when being audited by your state Department of Revenue is whether you will also trigger an IRS audit. While there is no certainty of this happening, it definitely is a possibility since both state and federal taxing agencies communicate with each other. Large mistakes on your state return will likely result in an IRS audit, but small mathematical errors may not. In some cases, your state might require you to amend your state return, which can impact your federal tax return, thus getting the IRS’s attention. It goes without saying that the best way to avoid a state or federal tax audit is to submit complete and accurate tax returns. Facing an audit can be stressful and intimidating but having audit representation can have a positive impact. Optima Tax Relief has over a decade of experience representing clients during both state and IRS tax audits.
Failing to pay, or even underpaying, your taxes can have drastic consequences that can cost a fortune. This is because on top of your unpaid tax balance is a heap of penalties and interest. One of the most common penalties to watch out for is an accuracy-related penalty. These can include a substantial understatement of income tax penalty and a negligence penalty. While a substantial understatement of income tax penalty usually requires an individual to lie about their income, a negligence penalty can result from being careless or reckless with your tax return. Here’s a breakdown of what the IRS negligence penalty is and how to avoid it.
Negligence or Disregard of the Rules or Regulations Penalty
The IRS may impose the negligence penalty on taxpayers who fail to use reasonable care or who make mistakes on their tax returns. Negligence is the failure to act with the same degree of caution that a reasonably cautious person would in a similar situation. In the context of tax returns, negligence can include the failure to maintain accurate records. It can also include failure to declare all income or to confirm the validity of a tax deduction or credit.
How Negligence is Penalized
The negligence penalty can be up to 20% of the portion of the underpayment of tax resulting from negligence. In addition to this penalty, the IRS also charges interest on the penalty. The current quarterly interest rate for underpayment is 8%.
Tax Negligence vs. Tax Fraud
The difference between the negligence penalty and the IRS’s fraud penalty should be noted. The fraud penalty can be applied to taxpayers who knowingly and purposefully understate their tax liability. It is significantly more severe. Taxpayers who make errors are subject to a less severe penalty known as negligence.
If the IRS determines that a taxpayer has been negligent when preparing their tax return, they will typically send the taxpayer a notice informing them of the penalty. The taxpayer will then have the opportunity to dispute the penalty. They will need to provide additional information or argue that they were not negligent.
The IRS will normally issue the taxpayer a notice advising them of the penalty if they are found to have been careless when preparing their tax return. The taxpayer will then have the chance to contest the penalty by offering more substantiating details or making a case that they weren’t negligent.
Avoiding the IRS Negligence Penalty
It is important for taxpayers to take the necessary steps to ensure that their tax returns are accurate and complete. This involves keeping precise records, disclosing all earnings, and only claiming the deductions and credits that they qualify for. The purpose of the IRS negligence penalty is to motivate taxpayers to take the required precautions to guarantee the accuracy and completeness of their tax returns. Additionally, it ensures sure that taxpayers cannot profit from their errors or carelessness at the expense of other taxpayers. If you’ve been hit with IRS penalties, like the negligence penalty, Optima Tax Relief can help.
If you have an unpaid tax bill, you know the stress that comes with owing the IRS. The IRS is a powerful agency with the ability to collect what is owed to them using severe methods. These can include garnishing your wages or levying your bank accounts. With a 10-year statute of limitations, the agency has plenty of time to forcefully collect tax debts. While some taxpayers might want to ignore their tax bills, doing so comes with many risks. Here are some of the top risks of owing the IRS.
The IRS will collect.
The IRS will always warn you of intent to collect or enforce through IRS notices. After these notices have been ignored, the IRS will place you in their Automated Collection System (ACS). This basically means they can issue liens, levy your bank accounts, and garnish your wages. Alternatively, the IRS may turn your tax debt over to a debt-collection agency.
The IRS may file a federal tax lien.
If a tax balance goes unpaid and notices are ignored, the IRS can file a Notice of Federal Tax Lien. This basically lets creditors know that you have tax debt. A lien is a legal claim against a property, usually placed because the property owner owes someone money. Liens can severely hinder your ability to access credit. In addition, they can also damage your reputation since they are public information.
The IRS can seize your assets.
If a tax balance goes unpaid, the IRS will send you a Notice of Intent to Levy. If they do not hear from you after 30 days, they may proceed with the levy. The IRS is known to levy bank accounts, wages, and more. Wage levies, also called wage garnishments, are when the IRS takes some of your paycheck to put toward your unpaid tax bill. The amount they levy will depend on your filing status and number of dependents.
The IRS may also levy your bank account. If your tax balance is greater than your bank account balance, they are authorized to levy the entire account. The same goes for joint bank accounts that you have access to. If you own a small business, or do contract work, the IRS can levy these earnings. If you file your taxes and are due a tax refund, the IRS will keep the refund and apply it to your unpaid tax bill. The IRS will stop levying if you arrange a payment agreement or if you pay your tax bill in full.
The IRS will charge you penalties and interest.
Your tax bill doesn’t end with your unpaid taxes. The IRS will charge you interest until the balance is paid in full. The current rate for underpayment is 7% annually, at least through June 2023. On top of that interest, the IRS will charge a failure-to-pay penalty on your unpaid taxes. The current rate is about 0.5% per month or partial month the balance remains unpaid, for a maximum of 25% of your unpaid tax. The amount is increased to 1% per month or partial month if you do not pay within 10 days of receiving an IRS Notice of Intent to Levy. However, if you set up a payment plan with the IRS, the rate drops to 0.25% per month or partial month.
You may lose traveling privileges.
Under the Fixing America’s Surface Transportation (FAST) Act, the IRS requires your Department of State to deny passport applications and renewals submitted by taxpayers with tax bills of $52,000 or more. The State may also revoke your valid passport or limit your ability to travel outside the U.S.
How Can I Get Relief from My Tax Debt?
Clearly, the risks of owing the IRS are extreme and affect all facets of life. If you’ve been ignoring IRS notices coming through your mail, it may not be long before these risks apply to you. Ignoring your tax issues will certainly not make them disappear. Your best bet is to find a way to work with the IRS to see what your options for repayment are. We know how stressful this process can be, but Optima is here to help you with all of your tax issues.
