Getting a notice from the IRS is never fun, especially if it sounds like they want everything you own. You have several options when it comes to IRS issues. These options will vary based on the type of tax lien, size of lien and your personal future earning potential. The more you are likely to earn, the less they are likely to compromise for you.
Federal Tax Liens
What does it mean to receive IRS Form 668(Y)(c) – Notice of Federal Tax Lien
If you have received IRS Form 668(Y)(c) it means that if you do not take action, the IRS could begin collection action against your financial and physical resources through tax levies, bank levies, wage garnishments and asset seizures. Once an IRS Form 668(Y)(c) has been filed, your IRS delinquent income tax problem has become an issue of public record. The lien attaches to all your property, and while not a levy (seizure of property), it secures the government’s interest in the property for unpaid taxes.
Tax Lien Removal!
Most people are unaware that an IRS tax lien history can be removed. Yes you heard me. The removal is specific to a Federal IRS tax lien and is in the form of a “withdrawal of lien” form. If you, a friend, or a family member have experienced issues with the IRS, don’t delay in requesting help. It is possible to work through these thorny issues.
Credit reporting of tax liens.
While your credit report may not show a tax lien, it does not mean you have not had past state or federal tax obligations. In June 2018, the rules changed and enforcement by the Consumer Financial Protection Bureau (CFPB) mandated the removal of many currently reported public records including bankruptcies, tax liens and judgments. After extensive review, the bureau showed that a vast majority of public records did not meet the minimum requirements of the FCRA or Fair Credit Reporting Act. These negative hits to your credit often rear up in the 9th inning of a mortgage process when the title company completes a required public record search. One way to check for tax liens is to apply for an optional 4th credit bureau called A LexisNexus personal report. This report contains much more personal information and often tracks more effectively public records. https://personalreports.lexisnexis.com/
Key findings by the CFPB
- All Civil judgments and about half of the tax liens on consumer credit records were removed. In contrast, the number of reported bankruptcies remained virtually unchanged.
- In June 2017, just before the NCAP’s restrictions were implemented, 6 percent of consumers had a Civil judgment or tax lien. The NCAP appears to have removed the public records for about 80 percent of these consumers. After the NCAP was implemented, 1.4 percent of consumers had a tax lien on their credit report and none had civil judgments.
- About 4 percent of consumers with Civil judgments or tax liens on their credit record in June (0.24 percent of consumers overall) experienced a large enough increase in their credit score to move into a higher credit score band.
Lien Finalization
Internal Revenue Code (IRC) § 6323 provides for the filing of a Notice of Federal Tax Lien (NFTL). The IRC also provides for the issuance of other certificates for the administration of the lien, including: Release of lien (IRC § 6325(a)); Discharge of lien (IRC § 6325(b)); Subordination of lien (IRC § 6325(d)); Non-attachment of lien (IRC § 6325(e)); Withdrawal of (IRC § 6323(j)).
Tax Lien Settlement
A tax lien settlement is typically described as an “Offer in Compromise.” Everyone is entitled to one Offer in Compromise in their life. To determine the offer, the IRS uses an algorithm to decide what can be offered as a compromise. If you have a large future earning potential, your offer will not be as substantial as someone who has limited future earning potential.
An Offer in Compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or if doing so creates a financial hardship. The IRS will consider your unique set of facts and circumstances based on the following:
- Ability to pay
- Income
- Expenses
- Asset equity
The IRS will generally approve an Offer in Compromise when the amount offered represents the most they can expect to collect within a reasonable period of time.
If you owe money to the IRS or have received notice of a lien on your property, give me a call, or fill out the form below and let’s discuss your particular situation and timetable for a response.
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Additional Resources:
https://www.irs.gov/payments/offer-in-compromise
https://www.irs.gov/pub/irs-pdf/f12277.pdf
https://www.irs.gov/irm/part5/irm_05-012-003r#idm140254801489504