If you neglect or fail to pay your taxes or you don’t pay them in full, IRS can place a federal tax lien, a legal claim against all or some of your assets. Liens exceeding $10,000 are recorded on the public record so they will dramatically affect your credit score.
First, IRS assesses your liabilities than sends you a bill stipulating the amount you owe and the deadline you have for this bill. If you don’t confirm a tax lien will be issued protecting the government’s interests. A Notice of Federal Tax Lien can be published to alert other creditors that the government has a legal right to your assets including future ones. A federal tax lien has precedence over all other creditors’ claims, so your other creditors will start worrying.
Beyond ruining your credit score this tax lien will damage your ability to buy/sell a property or a business and will affect your possibility to qualify for a mortgage loan.
What can you do in this case:
- Tax Lien Removal. If you think a mistake was made contact a tax lawyer and if there really was a mistake the Notice of Federal Tax Lien will be removed.
- Tax Lien Withdrawal. In order to qualify for a tax lien withdrawal, the taxpayer must establish one of the following. Note that the list does not limit to the examples below.
- The Notice of Federal Tax Lien was not filed according to the proper procedure
- The taxpayer agreed to repay the debt in installments including via Direct Debit.
- Withdrawal will help the taxpayer repay the debt;
You may also need to consult with tax layer in order to see if you qualify for a Notice of Federal Tax Lien withdrawal.
- Do nothing. Seems an easy solution but in fact, this is the least recommended one and the riskiest option. While you sit and do nothing, IRS can seize your assets: home, cars, income, etc. The situation can go from bad to worse and your house can be foreclosed due to unpaid taxes: property taxes, federal and state income taxes. In this case, IRS can move to repossess the property by auctioning your property. Note that the laws prevent you from bidding at this auction.
- Pay your outstanding tax balance. If the outstanding balance is no mistake paying your tax debts in full is the best thing to do. Sometimes it’s better to pay with your credit card and cover this new debt in time instead of owing money to the IRS. After you pay everything the IRS will release a taxpayer’s lien within 30 days after the debt has been paid in full.
- Set an installment plan with IRS. If you can’t pay the outstanding amount in one lump sum, establish a repayment plan with the IRS. Choose a monthly payment that you can afford and don’t miss payments. This is not the best possible option since the debt will not be erased.
- Get the financial hardship status request. IRS can evaluate your situation and grant you financial hardship considerations. This will happen only if the agency decides that you meet the qualification criteria. If you do so, you can apply for various settlement options. Note that in this case your tax lien will be removed.
As a resident of Cincinnati, Ohio you owe both federal and state taxes. The unpaid state taxes can get you in the same situation as unpaid federal taxes. So don’t forget the old saying, valid today as it was yesterday “nothing is certain except death and taxes”