In April 2018, the three major credit reporting bureaus announced a shift in procedures: they would cease including federal tax liens on credit reports. This was welcome news to individuals and businesses struggling to pay tax debts. There are still several other ways, though, that tax liens (federal and state) can indirectly affect one’s credit and overall financial wellbeing.
What is a Tax Lien?
When an individual or business fails to pay tax liabilities to the IRS, the federal agency will send the taxpayer a Notice and Demand for Payment. The IRS can place a lien on the taxpayer’s property if he or she fails to pay the tax liability on time (and in full). This lien is a public notice to the taxpayer’s creditors that the IRS has priority on the proceeds if any property belonging to the taxpayer is sold. The lien is meant to encourage the taxpayer to satisfy the tax debt. If a lien does not accomplish this, the IRS may move to levy the taxpayer’s property. An IRS levy means your property will be seized.
Federal Tax Liens Still Matter
Just because tax liens no longer appear on your credit report does not mean you are off the hook for your tax debt. Getting lines of credit is more difficult with a poor credit history, and lenders can still find out about any tax liens that apply to you and your property. As a result, lenders may be apprehensive about giving to someone whose collateral is already spoken for. This can be devastating to certain types of businesses that rely on credit to obtain raw materials or supplies.
Many employers perform a financial background check before hiring new employees. Employers are legally permitted to check your credit score before hiring you and can also find liens that are filed in the public record. Liens can cause problems for professionals at large companies who must regularly re-apply for projects and contracts and also for professionals applying for finance-related positions.
What Can You Do About Federal Tax Liens?
The easy answer here is to simply pay off your tax debt. However, we know that’s often much easier said than done. Plus, you probably wouldn’t be dealing with a tax lien if you otherwise had the ability to pay.
For many people, requesting an offer-in-compromise or a payment plan with the IRS is the best route to take. You might be surprised at the willingness of IRS employees to work out deals with taxpayers to pay off their debt over time. In other situations, especially where the amount owed is not too great, you might be able to work out an arrangement where the IRS does not file a tax lien.
Knowing the best course of action for you means having your situation scrutinized by an experienced tax attorney. Our firm has helped secure relief for countless individuals and businesses. If you’re struggling to meet your alleged tax obligations, we’d love to speak sometime soon. Contact our firm to schedule a free initial consultation today.
Robert V. Boeshaar Attorney at Law, LL.M.,PLLC
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