One of the largest federal agencies is doing its best to undermine the eventual recovery of today's staggering economy. The culprit is the IRS. We have noticed an alarming increase in the number of Federal Tax Liens filed against delinquent taxpayers in recent years. When you realize that these liens are often against people who are in the most precarious financial situations, you have to question the wisdom of that approach.
Recent figures show that the number of Federal Tax Liens filed against those who owe back taxes to the IRS has increased by 250% in the last seven years. At the same time, the number of tax liens that have been removed by the IRS has remained stagnant. This trend is likely to continue, which is terrible news for people in trouble, and even worse news for the economy generally.
It is that same troubled economy that has led to a significant increase in the number of delinquent taxpayers (many of whom have never had tax problems before). The IRS is filing more liens because of two factors: the impact of the economy on incomes and traditional borrowing sources and the recent changes in IRS policy.
Many people have had to dip into their retirement accounts to address cash flow problems. These early distributions from retirement savings accounts such as 401(k) s have dramatic tax implications. In addition, cash flow issues have led small business owners, the self-employed and independent contractors to fall behind on their estimated and payroll tax payments.
With real estate values still plummeting, traditional banks afraid to lend, and hard money lenders scarce, problems that were once easily addressed by borrowing against the equity have meant tax liabilities that most people cannot afford to pay.
The second reason for the increase in the number of Federal Tax Lien filings is a recent change in IRS policy. Prior to 2009, IRS collection agents used the liens as a last resort. Now, however the IRS's Automated Collections Services (ACS) automatically issues liens and local IRS Revenue Officers are under marching orders to issue liens in connection with their cases. This is true even in situations where people have entered into agreements to pay the delinquent taxes.
We think of it as a "lien first, ask questions later,‟ policy. Given that the IRS added 16,000 new IRS Revenue Officers this year, you can expect a continued increase in enforcement efforts. That means they will continue to put a damper on the economy for years to come.
The consequences of a tax lien go far beyond the payment of outstanding taxes. Whether or not the lien is or is not justified, the damage done can be irreparable. They may be given the opportunity to challenge the lien but, as a practical matter, challenges are difficult and time-consuming. Moreover, even if the challenge is successful or the tax payer satisfies the tax obligation in full they will suffer irreparable harm because of the lien‟s impact on his or her credit rating.
When a lien is filed, all three credit reporting agencies immediately pick up on it and it will most likely lower the taxpayer's credit score by more than 100 points.
In addition, once the IRS files the lien, it will affect a taxpayer‟s 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. Once prospective employers see the Notice of Federal Tax Lien on an applicant‟s credit report it's a mark against them. Clearly, applicants with good credit ratings have an advantage over those deemed poor credit risks in this highly competitive job market.
Perhaps the most disturbing outcome of a tax lien is that its negative effects outlive the tax obligation that caused them. Even when the tax lien is removed because the debt is paid, it can remain on your credit report for a minimum of seven years, and potentially indefinitely.
There are steps that can be taken to make sure a lien doesn't destroy their world today and tomorrow. There is a way to minimize, if not eliminate, the impact of a Notice of Federal Tax Lien on your credit report. The secret is convincing the IRS to withdraw it instead of releasing it. Withdrawing a lien is far superior to a release. If you can get them to withdraw the lien, it‟s as if the lien never existed.
If you'd like assistance with your tax matter, contact us at 888-727-8796 or email email@example.com.
Anyone who receives a Notice of a Federal Tax Lien is bound to be devastated by the news.. But you can‟t let that devastation immobilize you. Take action quickly and work with an experienced professional so it does not affect the rest of your life. Once taxpayers can regain their own financial stability, a healthy national economy is sure to follow.