The Internal Revenue Service (IRS) uses various tools to collect back taxes, including liens and levies. If you haven’t paid your tax balance yet, and you haven’t made any arrangements regarding that balance with the IRS, you will likely get a series of notices from the IRS as they try to collect those back taxes. The IRS may start enforcing collection actions that include tax liens and levies.
In this post, we will be discussing what tax levies and tax liens in Birmingham, AL, are and how you can avoid them:
How Levies Are Issued by the IRS
The IRS can issue a levy if there’s a need to take your assets and your income. This process involves a number of steps.
First, the IRS will provide you with three notices:
- Notice and demand for tax payment
- Notice of their intent to levy
- Notice of your right to a hearing for Collection Due Process
Typically, the IRS sends five letters, beginning six weeks after your filing of a return. Those five letters are also called “collection notice stream.” If you get the last notice and still you haven’t taken any action to pay your balance, the IRS can levy both your assets and your income. They can garnish your income from your work and take what money you have in your bank accounts.
How You Can Avoid a Levy
If you owe taxes, you can avoid a levy (or remove one if you’ve already received it) if you reach an agreement with the IRS to pay what you owe. What this means is you’ll have to take a quick look at your present financial situation and find a way to pay the IRS.
One option is to ask for an extension for the payment of the full balance. An extension can give you up to 120 days to settle your balance and avoid a levy.
If, for some reason, you cannot have an extension, you may be offered by the IRS various payment plans that are also called IRS installment agreements.
If you are really unable to make any payments, you can resort to requesting to be classified as currently not collectible status. This status will classify you as an individual who cannot pay temporarily. Whether you opt for the installment option or the “not collectible” status, having an agreement with the IRS can suspend any levy actions.
Note, however, that in the future, if the IRS can determine that you can pay your tax balance, your “currently not collectible” status will be removed.
How Liens Are issued by the IRS
When there are back taxes owed, the IRS can also issue a federal tax lien giving the IRS a legal claim to your property. There could be a Notice of Federal Tax Lien filed at the local courthouse, which will be a public record. This recorded federal tax lien makes it known that the government has a right to your assets over other possible creditors.
The IRS will wait to record tax liens until after it has sent all five notices in the collection notice stream and the individual still hasn’t made any payments.
You want to do what you can to avoid a Notice of Federal tax lien as it can significantly affect you. For one, you can have trouble attracting new clients, getting and keeping credit, and even getting employed.
How You Can Avoid Getting a Lien
It’s harder to avoid a tax lien than it is to avoid a levy. It’s because the IRS can still file a tax lien even if you have already reached an agreement with the IRS regarding your payment. According to the IRS business rules, a tax lien won’t be filed if what you owe is less than $10,000. Still, the IRS ultimately has the right to file a lien if it deems it necessary. For instance, the IRS might file a lien if there’s a pending bankruptcy or if they have reason to believe you’re getting rid of your assets to avoid payment.
The good news is you can still avoid a tax lien filing even if you owe over $10,000. You can do so by requesting an extension of time for the payment up to 120 days or by asking for a streamlined agreement to pay the entire balance.
If you choose the streamlined installment agreement, you will have to pay the full balance within six years or before the statute of limitations on collection expires, whichever comes first. If your tax balance is no more than $50,000 or if you are able to pay your balance down to less than that amount before you request the streamlined installment agreement, you may be able to avoid a tax lien.
Additionally, if the unpaid balance is between the amounts of $25,000 and $50,000, the IRS will not file a federal tax lien if you let them take installment agreement payments straight from your wages or your bank account.
Avoiding IRS liens and levies requires staying on top of your tax obligations. It is important to file and pay your taxes on time and address any IRS notices promptly. It is also important to communicate with the IRS and work with them to devise a payment plan if you cannot pay your taxes in full.
If you need additional assistance, you may want to consider hiring a tax professional or tax attorney to help navigate the process. Taking the necessary tax resolution steps to avoid IRS liens and levies can save you a great deal of stress and frustration in the long run.
Axiom Tax Resolution Group offers tax resolution in Birmingham, AL, among other services. Let our tax professionals help you find an effective solution to your tax concerns with the IRS. Contact us today!