A tax lien is essentially a claim placed on your property - such as a home, vehicle or other item of value - by a government taxation authority, such as the IRS or the Arizona Department of Revenue (ADOR). The lien, in itself, does not mean that the government will seize your property. It means that the government has first right to your property ahead of any other creditors. In order to place a tax lien on your property, the taxing authority must first assess a tax amount owed, send a bill to your last known address and give you a certain period of time to pay the bill; if it is not paid within the allotted time, the government may then file a notice of tax lien.
Any tax liens on your property will appear on your credit report, which will likely impact your credit score. With a tax lien on your credit report, it is extremely difficult to obtain future credit because the taxing authority has first right to your assets ahead of any other potential creditors, significantly increasing the risk to lenders. This can make it impossible for you to, for example, buy a house, buy a car, get a new credit card or even sign a lease for a rental property.
The simplest way to have a tax lien released is to pay the full amount of the tax bill. The taxing authority may also consider releasing the tax lien if you enter a monthly payment plan to settle your tax debt. Finally, if your tax attorney finds that the taxing authority didn't follow correct procedures when filing the tax lien, you may be able to fight to have it released.
Tax levies and wage garnishment
Unlike a tax lien, a tax levy is an actual seizure of your property to pay your tax debt. The IRS can levy your bank accounts and your real property by following particular procedures. Generally, the IRS is required to give written notice of its intent to levy at least 30 days before it levies. In the case of levied bank accounts, the bank must wait 21 days after service of levy before turning the funds over to the IRS. This freeze gives you a chance to resolve the matter before you suffer the potentially very harmful effects of a levy. In the case of levied real or personal property, the IRS can reduce it to cash by selling it. Before the IRS can do this, they must provide you with notice of the levy and intent to sell.
Wage garnishment is another type of levy in which the IRS seizes a portion of your paycheck. This is an administrative levy that does not require a court order. The IRS is required to follow stringent guidelines when garnishing paychecks, however. In particular, the IRS can only garnish up to 25 percent of your disposable earnings - that is, the amount of pay left after mandatory deductions - in most cases.
As with a tax lien, you may be able to avoid a tax levy by working with the taxing authority to create a payment plan or settle your tax debt entirely. It may also be possible to reduce the amount of the levy or garnishment to make sure you can still pay your living expenses. That's why it's critically important to have an experienced tax lawyer on your side who can help you figure out the best course of action to take.
Don't face your tax problems alone. An experienced tax attorney can help
A tax lien or tax levy can not only cause a ton of stress, it can have serious long-term effects on your financial future. If you're facing collection action, don't try to handle the IRS alone. Contact us today for a free consultation.