They say there are two certainties in life—death and taxes and, when it comes to the latter, one can be certain that the Internal Revenue Service will notice if taxes aren’t filed or paid. When dealing with tax debt or a disputed tax bill, it’s wise to address the matter promptly. Failure to do so can result in the IRS imposing additional fines and penalties including a federal tax lien.
In cases where the IRS asserts a taxpayer owes debt and he or she fails to pay the debt or otherwise address the matter with the IRS, the agency may issue a Notice of Federal Tax Lien. Upon issuing this notice, the IRS effectively stakes a claim to an individual’s property.
The existence of a federal tax lien can negatively impact an individual’s financial standing in a number of ways. For example, an individual cannot sell any personal property to which a lien is attached and he or she will likely experience difficulty obtaining credit needed to purchase a home or car. Small business owners should also note that a tax lien “attaches to all business property and to all rights to business property.”
In certain cases, an individual may be able to procure an agreement with the IRS to discharge specific property from a tax lien or, through a process known as subordination, allow other creditors to “move ahead of the IRS.” In other cases, the IRS may issue a withdrawal of the lien, thereby enabling an individual to secure credit and carry on with normal business practices.
Connecticut residents who failed to either file or pay their taxes, or both, would be wise to consult with an attorney who handles tax matters. An attorney can assist in helping an individual avoid a federal tax lien or, in cases where a lien has been issued, assist in its removal.
Source: IRS.gov, “Understanding a Federal Tax Lien,” April 28, 2015