Taxation & Estate Planning

Critical Information that You Need to Know to Avoid A Notice of Federal Tax Lien

By Darrin Mish

You will receive notice of a tax lien if you owe taxes and the IRS?s attempt to collect them from you has failed. A tax lien gives the IRS the option of filing a notice in all the counties you live, work, and/or own property in stating that you have a tax debt. This lien is attached to all your assets and could affect your credit and your ability to sell or borrow against your assets. If your IRS Problems have come to this point, now is the time to get help.

Initially, the IRS sends out a notice requesting immediate payment. If you ignored this initial mailing for one reason or another then you should have also received subsequent mailings until the dreaded final notice. This notice gives you 30 days from the date of the letter to pay your taxes. You will not receive another notice and should expect action from the IRS anytime after this 30-day period.

If you are unable to pay your taxes in full at this time, you have two options: an extension of time to pay or an installment agreement.

Extension of Time to Pay

You will need to fill out Form 1127(Application for Extension of Time for Payment of Tax). To qualify for this option, you will have to prove that you are entitled to an extension. The IRS typically denies an extension because most people do not know how to provide this proof. You must show:

? That you are unable to pay on time due to circumstances beyond your control even though you did your best to plan for your taxes
? That you will not be able to pay your necessary living expenses and will encounter economic hardship if you pay on time
? That you agree to give the IRS security for the unpaid tax which means it will file a tax lien(which will be the IRS?s next course of action anyway)

If you are granted an extension, you may get up to 6 months more to pay your taxes. One benefit of an extension is that you will not be assessed penalties on your tax debt. You will, however, be assessed interest during the extension period. Another benefit is that the IRS cannot execute any other enforcement action during this time helping you to avoid a tax levy as long as you pay your debt by the due date.

You may also simply call the IRS at the number listed on the most recent notice and ask them for some additional time to pay. If you ask for a 120 day extension to pay, it will almost always be granted.

Installment Agreement

If you are denied an extension, your next step is to obtain an installment agreement. Form 9465(Installment Agreement Request) will need to be filled out. This form should be submitted along with your tax return.

The IRS cannot deny an installment agreement if you meet all of the following criteria:

? You owe no more than $10,000 (not including interest and penalties assessed)
? You have not failed to file, failed to pay, or received an installment agreement within the previous 5 years
? You can prove that you cannot financially pay the tax on time (agreeing to provide a financial statement is essential)
? You agree to complete payment within 3 years
? You will meet all your tax obligations during the agreement

Obviously, your best course of action would be to avoid a tax lien. Our office can guide you through the paperwork and answer any questions you may have about tax liens, extension of time to pay, or installment agreements. Contact us today tollfree at (888) 438-6474 so that you can get the IRS Help that you need.

Full post as published by IRS Problem Solver Blog on January 15, 2008 (boomark / email).