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When might the IRS file a tax lien against your property?

If penalties and interest weren’t enough to intimidate taxpayers who are accused of unpaid taxes, the IRS also can file a federal tax lien against one’s property. Since a tax lien can affect an individual’s credit score, it is important to understand how this collection tactic may arise. As a law firm that focuses on federal and state tax controversies, we also hope this knowledge will encourage individuals to consult with an attorney early in the process, before a lien has been filed. 

First, a tax assessment must occur before the IRS can record a tax lien against an individual’s property. That assessment is accompanied by correspondence from the IRS, such as a notice of deficiency. If the dispute continues, the controversy will eventually result in the IRS issuing a letter, called a Final Intent to Levy Notice. This letter provides a 30-day appeal period to the taxpayer. Failing to take any action will result in the IRS issuing a tax lien.

If a tax lien sounds like a remote possibility, consider this statistic: The U.S. Department of Justice, at the IRS’ request, issued liens on 11 million property items in 2013. Those items were often homes or cars, but could also include other types of property. From that number, however, only 547 property items were actually seized.

What accounts for the difference? One explanation might be administrative settlements with the IRS, such as offers-in-compromise or other arrangements. From a practical perspective, the IRS may also have employed other tactics to collect a tax, such as wage garnishment or a levy against bank accounts.

Nevertheless, garnishments and levies also present quite an imposition. For example, the IRS can garnish a majority of an employee’s wages, perhaps 70 percent or more. In the case of a bank account, the entire tax obligation can be set aside if there are sufficient funds in the account. Take a proactive approach to your tax controversy by consulting with a tax attorney.

Source: Accounting Web, “What Your Clients Should Know About Federal Tax Liens,” Craig W. Smalley, Feb. 11, 2016

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