Have you ever discarded a piece of mail you later wish you hadn’t?
Usually the consequences are not severe. After all, if it was a bill, just wait — another will show up next month (albeit with an extra fee).
But there’s one sender you never want to ignore: the IRS. This is especially true when the IRS sends a lien notice in order to collect taxes.
The tax agency gives you only a limited time to respond before it acts, so don’t delay.
The IRS normally files a Notice of Federal Tax Lien only after it assesses the liability and sends a Notice and Demand for Payment, and the debt isn’t fully satisfied within 10 days after the notice.
Why does the IRS file a lien notice? It’s to notify other creditors that it has a claim against all of your property — including any property you might acquire after the lien is filed. The notice is used by courts to establish priority with other creditors.
A tax lien is standard procedure, designed to protect the IRS’ interests and motivate you to pay. It would be rare for the IRS to file a lien against someone who didn’t really owe the stated amount and didn’t receive proper notice. At a minimum, the IRS believes you owe the tax and haven’t paid.
The message: Eliminate any confusion or correct errors right away, or you could end up fighting the IRS — a formidable foe.
During tax season, the IRS sends lots of mail, but a tax-lien notice could arrive anytime during the year. Should you receive one, take it seriously. Immediately contact a CPA, enrolled agent or tax attorney — these are the only people permitted to represent you before the IRS. Never talk with the agency directly. Let your financial advisor know too.
IRS liens hurt credit ratings, scare your business’s customers and vendors, worry your boss, tie up real estate, and more. If you have cash-flow problems and can’t pay, let your tax advisor try to persuade the IRS not to file a notice of lien.
An IRS lien is in effect for 10 years. Then it typically releases automatically — unless the IRS decides to refile it. Getting a lien removed usually involves paying the tax, interest and penalties, or posting a bond to guarantee payment. You’ll also have to pay state and local government charges to file and release the lien.
Pleading ignorance or human error won’t fly — and neither will most other excuses.
This material was prepared for informational and/or educational purposes only. Neither Financial Engines Advisors L.L.C (also referred to as Edelman Financial Engines) nor its affiliates offer tax or legal advice. Be sure to consult with a qualified tax or legal professional regarding the best options for your particular circumstances.