IRS Tax Liens

IRS’s Enforced Collection Measures and What to Do About It

If you owe money to the IRS, the government will usually file a Federal Tax Lien. A tax lien is a negative mark on your credit report and “attaches” to any real estate you own. It is typically filed with your country recorder’s office.

By recording a lien with the credit-reporting agencies, the IRS is putting your other current and future creditors on notice that you owe money to the Federal Government.

By filing the lien with your country recorder, the IRS is attaching your personal income tax debt to any real estate you own. This places them in line as one of the creditors on your home.

For example, let’s say your home is worth US$300,000 and that you have a first mortgage for US$100,000, a second mortgage for US$50,000, and a Federal Tax Lien for US$50,000. When you sell your home, your first and second mortgages get paid, as does the IRS, leaving you with US$100,000.

Same example, but let’s say you owe the IRS US$500,000. When you sell your home, your first and second mortgages get paid in full, and the IRS taxes the balance of US$150,000…leaving you with nothing but a remaining IRS debt of US$350,000.

Same example where you owe the IRS US$500,000, but a lender foolishly lends you US$100,000 against your home after the IRS files its lien. When you sell your home, your first and second mortgages get paid in full, and the IRS takes the remaining US$150,000 of equity, leaving the new lender with nothing.

If you file an Offer in Compromise that is accepted by the IRS and you pay in full, the tax lien will be removed from your home and reported as satisfied to the credit agencies. However, your Offer in Compromise must include 80% of the equity available in your home.

Using the same example as above, where you have US$150,000 of equity in your home, if you file an Offer in Compromise, your offer amount must include 80% of that US$150,000, plus any extra income you have over your allowed expenses.

Therefore, if you are a retired person, living on a Social Security pension, and your only asset is your home, then you may be able to settle your IRS debt of US$500,000 for 80% of US$150,000, or US$120,000.

Note: The 20% non-refundable deposit must include your available equity and therefore you need to come up with the US$150 filing fee plus 20% of US$120,000, or US$24,000, to file the OIC above.

If you are working and your income is US$2,000 per month over your allowed expenses, then you may be able to settle for US$120,000 + (US$2,000 x 48) = US$216,000. In this case, your 20% non-refundable deposit is 20% of US$216,000, or US$43,200.

Because the value of your home is used in determining the 20% deposit, as well as the offer amount, a proper valuation of the home is a key component to a successful Offer in Compromise. Also, proper planning and documentation of the OIC prior to filing may reduce the value of any assets, minimize the 20% deposit, and ensure you get the best deal available from the IRS.

Premier Tax & Corporate, Inc., LLC will analyze your case, determine your best course of action, prepare your forms, review your supporting documents, send you a completed package reviewed by a tax attorney and an enrolled agent, and prepare a custom-made, detailed letter of instruction. We will also support you throughout the process by phone and online chat.

Put our decades of IRS experience to work for you and get great results. Click here to get started now, here to send an e-mail inquiry, or phone us at (800) 581-6716/(213) 985-1876 with any questions.