If you don’t pay your taxes, whether due to financial hardship or neglect, it’s important that you understand the potential consequences. The IRS is allowed to claim your property (called a “lien”), levy your assets, and/or seize everything you own. These three collection outcomes are described below. Unless you have communicated with the IRS about setting up a payment plan, these processes can begin as soon as your taxes become overdue.
Neglecting to respond to any communication from the IRS about your taxes may increase the likelihood that the IRS will resort to one of these collection methods. Be sure to seek IRS guidance if you are concerned about paying your taxes on time, and review the new tax laws to make sure you are not a candidate for any of the following.
This term describes the IRS’s legal claim to any property you own at the time your taxes are due, as well as any additional property you acquire within 10 years (including real estate and personal property). It’s important to note that a federal tax lien does appear on your credit record, which ultimately will affect your ability to apply for loans or additional credit lines. It also may not be released if you file for bankruptcy.
Before the IRS can carry out a lien, they will send a demand for payment followed by a Notice of Federal Tax Lien if the payment is not received. You can take action against a lien by 1) paying the amount in full within 30 days, 2) removing a lien from a specific property (“discharge of property”), 3) moving other creditors ahead of the IRS to make it easier to apply for a loan (“subordination”), or 4) removing the Public Notice of Federal Tax Lien (“withdrawal”).
2. Tax Levies
In order to collect owed taxes, the IRS is permitted to take property on which there is already a federal lien. This is called a “levy.” If the IRS intends to carry out this process to collect taxes you owe, you will receive a “Final Notice of Intent to Levy.” A levy can also apply to a checking or savings account, stocks, and other assets (and they are typically used as a last resort to collect funds). If you have received notices from the IRS but have failed to respond, the IRS may fall back on this option.
You have a couple of options to halt the process, although they all require you to act immediately:
- If you can prove that a levy will result in immediate economic hardship for you or your family, the IRS may not carry it out.
- You can appeal the levy.
This is the most extreme outcome; the IRS can “seize”—or take possession of—the property you own or any assets and auction them off at market value. Certain assets are counted as “exempt,” including any clothing you own, worker’s compensation, child support, or benefits you earn through unemployment. Again, you can resolve this issue (and avoid the consequent damage) by paying the amount you owe. You can also avoid seizures if you can demonstrate that the action would result in immediate financial hardship. Finally, you may appeal for a release of the seizure.
If you are in need of assistance by expert IRS consultants, contact IRS Solver today.