The filing of Federal Tax Liens is at record highs, to the detriment of taxpayers and economy-at-large. The number of Notices of Federal Tax Liens filed against delinquent taxpayers in recent years is on an alarming upward trend.
Since 2003, the number of Federal Tax Liens filed against those who owe back taxes to the IRS has increased by 250%. Meanwhile, the number of Tax Liens released by the IRS has remained stagnant. This trend is likely to continue, which is terrible news for taxpayers in trouble, and even worse news for the economy generally.
The filing of a Notice of Federal Tax Lien can have far-reaching and potentially devastating consequences for a taxpayer, even after the tax obligation is satisfied and the Lien released. Yet, there is a solution.
A Notice of Federal Tax Lien: What does it mean?
If a taxpayer owes a debt to the IRS, initially that information is known only to the IRS and the taxpayer. If the tax debt reaches a certain size or remains unpaid for an extended period of time, however, the IRS will issue a "Notice of Federal Tax Lien." The process itself might seem surprising.
First, the IRS records the Notice of Federal Tax Lien (in county courthouse or on local land records, depending on jurisdiction). Once the Notice of Federal Tax Lien is filed, the IRS then sends a letter to the taxpayer explaining that the Lien has been filed. To reiterate, the IRS first files a Notice of Tax Lien, and then it lets the taxpayer know about it. At that point, the IRS gives the taxpayer an opportunity to challenge the filing of the Lien at a "Collection Due Process Hearing."
As a practical matter, challenges are difficult and time-consuming. Even if a subsequent challenge proves successful, and even in situations where the delinquent taxpayer has the financial ability to satisfy the tax obligation in full, once the Notice of Federal Tax Lien is filed, irreparable harm may have already been done to the taxpayer.
The Damage Done by the Filing of a Notice of Federal Tax Lien
All three credit reporting agencies immediately pick up on the Notice of Federal Tax Lien. The filing of one Notice of Federal Tax Lien for an amount under $50,000 will lower a credit score by more than 100 points, resulting in immediate and problematic consequences for the taxpayer. For example, the taxpayer’s credit score may increase the cost of refinancing, or prevent him from obtaining loan modifications or lines of credit.
Often, a Notice of Federal Tax Lien will preclude a taxpayer from borrowing altogether, or force him to do so from non-traditional sources, such as family, friends, and even loan sharks.
Additionally, the filing a of Federal Tax Lien dims employment prospects, especially for those seeking executive or other higher-end positions. Nearly every job applicant in this tough economy is subject to a background check. Part of each background check is a credit report. Thus, prospective employers will see the Notice of Federal Tax Lien on the applicant’s credit report. Applicants with good credit ratings have an advantage over those deemed poor credit risks in this highly competitive job market.
Most disturbing of all, the detrimental effect of the filing of a Notice of Federal Tax Lien on the taxpayer’s credit report survives the tax obligation upon which it is predicated. Even when the Notice of Federal Tax Lien is no longer operative and has been released by the recording of a Certificate of Lien Release, the Notice of Federal Tax Lien remains on the taxpayer’s credit report for a minimum of seven years, and potentially indefinitely. This is true even after the taxpayer has resolved his tax problem with the IRS.
The Hope: Withdrawals are Golden and are Very Possible
There are numerous cases where taxpayers have no assets, yet the IRS files a Tax Lien. Additionally, the IRS does no inquiry to whether or not a Tax Lien would be disastrous to a taxpayer's employment or business, yet Federal Tax Liens are filed anyway. The IRS will file a lien even where an installment agreement is in place.
There is a way to minimize, if not eliminate, the impact of a Notice of Federal Tax Lien on a taxpayer’s credit report.
A Release of Federal Tax Lien does nothing to remedy the damage done to a taxpayer’s credit report by the filing of the Notice of the Lien, because the Notice (and the Release) remain on the taxpayer’s credit report for a minimum of seven years.In order to eliminate the negative impact the Lien has on the taxpayer’s credit rating, one must obtain a Withdrawal of Federal Tax Lien. Unbeknown to many, including most tax practitioners, a Withdrawal effectively erases the Notice of Federal Tax Lien from the taxpayer’s credit report, making it appear as if the Lien were never there.
Practically speaking, and what many tax attorneys don't know is that any taxpayer may ask the IRS to withdraw a Notice of Federal Tax Lien, even if the Lien was previously released. As recently pointed out by National Tax Payer Advocate Nina Olsen, the IRS' previous claims that a Released Lien could not be withdrawn are unsupported by the law.
Conclusion
It is essential that taxpayers do not take the filing of a Federal Tax lien laying down and fight it. The cost of allowing a lien to remain can be paralyzing. And the golden lien withdrawal solution is, while not guaranteed, is nonetheless, available. If you'd like assistance understanding what the best move in your case is, contact us. We can help. Call us at 888-727-8796 or email info@irsmedic.com.
