A tax lien is a claim by the Internal Revenue Service against a debtor's property or funds for failure to pay income taxes. When a person does not pay their taxes the I.R.S. may attempt to recover the money owed in taxes by placing a lien on the person's home, car, bank account, wages, or other property. The I.R.S. will then use a levy to sell the seized property at auction in order to recover the tax debts.

How Should I Respond to the IRS’s Action?

If you receive a “Notice of Intent to Levy,” you should respond within thirty days of receiving the notice. Your responding statement should include:

  1. Complete history of the incident
  2. Complete tax payment history of the debtor
  3. Why compliance with tax code was not met
  4. Witnesses, documentation or any other evidence which could prove the circumstances you describe
  5. Your exact reason for failure to comply

Forms of Tax Settlement

The I.R.S. has several methods of working with debtors to reach a solution. Forms of tax settlements include:

  • Offer in Compromise – Although the IRS would like all the taxes, it is possible to negotiate with them so that you only have to pay back a portion of what is owned. 
  • Innocent Spouse – A postnuptial could limit the amount of taxes you legally owe the IRS because of your spouse’s own failure to properly follow the law
  • Installment Payment Agreement – The IRS is usually happy to accept tax payments in monthly installments provided the debtor can keep abide by the agreement.
  • Unavoidable Absence – The IRS may grant time extensions if a circumstance beyond the debtor’s control, such as death or serious illness, prevents the debtor from meeting all obligations in a timely manner. Destruction of records by natural disaster or theft may be accepted if the event can be proved.
  • Undue hardship – The IRS may grant time extensions if the debtor can prove that paying the taxes would place an extremely heavy burden on the debtor. This tactic cannot be used simply because the debtor doesn’t want to pay taxes; the debtor must honestly be suffering through economic hard times to qualify. Bankruptcy, mentioned below, is probably one of the best ways to establish undue hardship.
  • Active Military Service – The IRS will grant a time extension for those in the military serving overseas.

Bankruptcy and Tax Liens

If a debtor successfully files for bankruptcy the I.R.S. will have to drop their tax lien against the bankrupt debtor. However, once the debtor emerges from bankruptcy the I.R.S. may be able to place a new lien on the debtor's property, so contact an attorney if you are faced with a tax lien and are considering bankruptcy.

Why Won’t the IRS Accept My Reason for Failure to Comply?

The IRS examines the debtor’s entire tax history and the reasons provided for not paying very carefully. If the IRS determines that something in the debtor’s information doesn’t add up, like out of sync timelines or a debtor history filled with tax evasion, than the IRS may reject any justifications and offers of negotiations.

In general, the IRS expects that all citizens pay their share and holds each citizen to those standards. Thus, the following reasons are not accepted by the IRS: 

  • Constitutional Law Arguments – The IRS has the power to collect income taxes under the sixteenth amendment. Any protests regarding such powers should be directed to a judge or your congressional representatives. This includes arguments about religious exemption, due process or slavery.
  • Mistake of Law – Claiming ignorance of the tax code will not help your case. The IRS demands that you hire an accountant or go visit the local library if you don’t know how to do your taxes properly.
  • US Citizenship – Citizenship is very easy to prove. Were you born on American soil or did you take an oath to be a citizen? If so, you’re a citizen and thus obligated to pay income taxes to the American government.
  • Laziness/Forgetfulness – All citizens have the obligation to pay income taxes. Being lazy or forgetting about your financial responsibilities is not a good excuse.

Can an Agency Other Than the IRS Place a Tax Lien?

Yes. Although the Internal Revenue Service is the organization most likely to use tax liens, the IRS isn’t the only agency capable of placing tax liens on debtors. State and county tax collection agencies may also invoke the same powers as their federal counterpart. Although the procedures may differ from state to state, you should follow the same guidelines when dealing with state and local agencies.

Do I Need a Tax Lien Lawyer for My Tax Problem?

Taxation problems contain many complicated legal issues. If you are faced with a tax lien or another tax issue, then a tax lawyer can help guide you through the process and make sure your rights are protected.