This is a guest post from Manny Davis.
What is a Tax Lien
A tax lien can be defined as claim or security of interest put on personal property by taxing authorities to secure the repayment of tax debt and to stake claim over other potential creditors. Once you have received a Notice of Federal Tax Lien the lien will be attached to just about anything you own or have rights to. This means that you will not be able to sell that piece of property, refinance it, without the IRS getting their cut in order to satisfy the taxes owed. A tax lien will remain in place until taxes have been paid or settled in some way with the IRS.
Effects of a Tax Lien
Tax liens can really hurt individuals financially, especially those looking to borrow money for big purchases such as a house or a car. When you apply for a large purchase and try to get a loan, the lender will take a look at your credit report and will see a tax lien on there. This is a huge red flag to any lender and it will be highly unlikely for them to give you a loan. Normally when a loan is given that lender has first claim to the asset if you default on payment but when there is a tax lien, the IRS takes legal claim over just about all other lenders. With that being said you can understand why it is important to resolve a tax lien.
How to Handle an IRS Tax Lien
The method you choose to handle your tax lien is dependent upon your unique tax and financial situation. There are many methods that can be used to get the lien released. The IRS has done a good job a setting up various options for taxpayers in all types of financial situations. Sometimes the lien can be released immediately and other times it may take several years. Below are the most common methods that can be used to get a tax lien removed.
Pay the IRS in Full – Once the taxes owed have been paid in full the tax lien will be released. This may not be an option to many people because they most likely have gotten into this situation because they were unable to pay the taxes in full. If it is extremely important to have the lien released right away you may be able to consider borrowing from friends or family. This is only an option if you feel you will be able to pay them back quickly.
Pay taxes back through a payment plan (Installment Agreement) – The most common form of payment plan offered by the IRS is an Installment Agreement (IA). With an IA you will be able to pay back the taxes owed in monthly increments. With an installment agreement you will most likely be granted it if the IRS feels you can pay off the balance in 3 years or less. The tax lien will only be removed when the entire balance is paid off. So if it takes you 3 years to pay off the balance then the lien won’t be released for 3 years.