The improvements to tax liens under the Fresh Start Program are definitely appreciated, and they can do a great job of making some cases move a little quicker and receive a more beneficial outcome. But, seeing as the IRS is never going to make things truly easy, the improvements don't fix the convoluted mess of tax liens entirely. The way the IRS has been treating tax liens up to this point has been absolutely horrible. So, while we can definitely appreciate a step in the right direction, it doesn't mean that knowledge, hard work, and experience can take off for some rest and relaxation. Staying alert is the key to keeping afloat.
It doesn't even make sense
Tax liens are messy. Anthony Parent, the founder of IRSMedic, was at the town clerk office flipping through some pages, when he noticed a lien that the IRS had filed for $40. Scratching his head, he went to the town clerk and asked if the IRS had to pay a filing fee every time they filed a tax lien against someone. The clerk nodded, which prompted Anthony's next question: how much did the IRS pay to file the lien? The answer – $53. Anthony then asked a follow-up question: when the $40 lien is paid, how much will it cost the IRS to remove that lien? Once again, $53.
Right there is a prime example of how absurd the situation is. As most 3rd graders could work out, having to pay $106 (for the initial filing and then filing to have the lien removed) in order to get the $40 you're owed is insane and irresponsible.
A new threshold
One of the most beneficial IRS Fresh Start Program Tax Lien improvements is the change to thresholds. The threshold for the IRS filing a lien was bumped from $5,000 to $10,000. Also, when using a DDIA (Direct Debit Installment Agreement) the threshold for requesting a lien withdrawal has been set at $25,000. For the DDIA, there are a very certain number of people who can fit into the category. If you've had a defaulted payment or failed to be in compliance, it's probably not going to help you. Chances are it's not going to help the majority of taxpayers, but it can provide some relief to those who meet the criteria.
While not affording a huge amount of flexibility, offering taxpayers a little more room to operate in is always appreciated. That being said, the IRS can file a lien for any amount if it's deemed warranted. The new thresholds, while proving to be much more adept, do not preclude the IRS from acting on their own prerogative.
I'm particularly fond of the next improvements. If taxpayers meet certain requirements, they can request that liens be withdrawn. It's also now easier to request lien withdrawals once a debt has been paid. As always, there are stipulations. In order to make the request, you have to have been in compliance for the three years prior to filing your individual tax returns, business returns, and information returns. You must also be current on your estimated tax payments and federal tax deposits, as they might apply.
In addition to the added possibilities for getting a lien withdrawn, the IRS has expanded their personnel capable of withdrawing liens to their collections staff. Before the IRS Fresh Start Program Tax Lien changes, withdrawals were limited to technical services (who are great people, just wildly overworked). The idea is that the more people who can withdraw the liens, the faster taxpayers can see their liens lifted.
Unfortunately, a lien acts as a stigma. Much like bankruptcy, there's a measure of pride that takes a hit when you have a mark attached to your record. Anything that helps us get rid of that mark faster or more effectively is a win in my book. Under the previous rules, the IRS would file a lien as a form of punishment, even if there were no assets to attach it to. Improvements to their treatment of liens was a desperate need.
Make sure you can afford your payments
It sounds like a silly thing to say, but it's one of the most important words of warning we can give taxpayers – make sure you don't default on your installment agreement payments. After entering into an installment agreement, a large number of people find themselves in some serious trouble. It is of the utmost importance to make sure that the agreement you enter into is realistic.
People often enter into agreements with the IRS that demand unrealistic payments; this is a point where you can't be too careful. Also, to avoid possible liens, it's mandatory that you're in compliance with the IRS. No one is going to tell you whether or not you're in compliance, so it falls on your shoulders — or to the expertise of your hired professional — to make sure that you're in the clear. If either of these is a problem — whether you default on a payment or are not in compliance — the IRS will have no hesitation slapping you with a lien.
It's always a possibility to demonstrate to the IRS that the lien would make it harder for you to repay your debt (thereby convincing them to remove the lien), but it becomes infinitely more difficult once a default is added to the mix. Whatever you do, never enter into an agreement where a default is a strong possibility.
When going through this process of lien withdrawal, it's important to dot every i and cross every t…and perhaps anticipate that the IRS will kick something back at you on a technicality. If you need assistance, contact us for a free consultation. We can help.