Dealing with an IRS lien can have significant consequences for your business operations, credit ratings, and personal and business property. It is essential to understand the complexities surrounding tax liens, including federal tax liens, levy notices, and demand for payment, to safeguard your assets from potential legal seizure. On this page, we will explore various collection actions, such as bank levies, wage levies, and the seizure of business property. Additionally, we will provide strategies to mitigate the impact of tax liens on accounts receivables, business equipment, and bank accounts. Understanding your rights and responsibilities as a business owner, as well as the importance of involving a tax attorney to handle tax lien matters, is crucial. We will also discuss available options to navigate financial hardships resulting from unpaid taxes. Join us as we navigate this intricate terrain, offering valuable insights to protect your business assets and effectively navigate the complexities of tax lien financing.
When it comes to tax debts and the collection efforts of the Internal Revenue Service (IRS), understanding tax lien notices and the potential seizure of personal property is of utmost importance. In this section, we will delve into the world of tax liens, exploring the process of tax lien notices and discussing the possibility of property seizure. We will cover various aspects, including the significance of public notice, the implications of tax liens on personal property, the timeline involved, and the impact on specific assets such as retirement accounts. By gaining a comprehensive understanding of these elements, you can take proactive measures to protect your assets and effectively manage tax lien-related challenges.
What’s the Difference Between an IRS Levy and an IRS Lien?
When IRS payment is not received in full, the agency can follow a few different avenues in an effort to get you to pay your tax arrears.
Collection Due Process Letter
Around 75,000 businesses receive IRS CDP letters each year, the IRS reports. Generally speaking, no legal action has been taken against you or your business when the first letters are sent. Instead, they’re sent to inform you of your unpaid tax balance and to let you know what you can do to resolve the situation.
Even though the language used on CDP letters may seem frightening, this is your best opportunity to act. During this stage, you can contest the balance or often negotiate a payment schedule with the IRS. Some businesses also take out loans to pay off tax debts at this stage to avoid paying fines or penalties and to get the balance paid off quickly.
Tax Lien on Business
If you don’t respond to CDP letters, the IRS’s next step is typically to file a lien. This legal claim against your property is used to secure the tax debt. It means that the property cannot be sold or used as collateral. Liens against businesses usually span all assets, covering everything from your real estate to equipment and receivables.
You still have some negotiating power during this stage, but it’s tough to get tax lien loans because the IRS already has a claim to most types of collateral you would otherwise use to secure the debt. It’s worth noting, however, that the IRS removes liens once the balance is paid.
Tax Levy on Business
If you don’t respond to the letters or your IRS tax lien notification, the government may be able to seize your assets to satisfy your tax debts. The physical seizure of your property is referred to as a levy. The IRS must send you a “Final Notice of Intent to Levy and Notice of Your Right to A Hearing” 30 days beforehand.
You can still work things out with the IRS at this stage. In fact, you can even ask the IRS to release seized property before it’s sold, provided you can take care of your tax balance, per IRS guidance. However, setting things right’s much more difficult if you reach the levy stage.
The Impact of a Levy or Lien Against a Business
Liens impact a business’ credit and access to funding, meaning it can be much more challenging to take out a loan to cover an unpaid tax balance or cope with working capital gaps. You may find that even vendors refuse to wait for payment too.
Because the IRS can levy most any business asset, the agency can conceivably drain your bank account or collect payments due to you before they reach you. This makes it incredibly difficult to anticipate cash flow and run a profitable business.
Additionally, IRS debts and liens are not cleared in bankruptcy. They’re distinct from any other debt or lien in this respect, which makes them very difficult to escape.
How to Address Tax Liens
If you’re worried about getting a tax lien or already have one, there are a few ways to address the situation.
1. Pay Taxes on Time and in Full
Sometimes businesses intentionally pay taxes late because other expenses take precedence, such as an emergency or payroll. If something like this prevented you from paying taxes on time, get processes in place to manage working capital better.
2. Respond to the IRS Promptly
The IRS doesn’t really want to levy your assets. It just wants the money due. Respond promptly to IRS letters or bring on a tax expert, such as an accountant or attorney, right away if you don’t feel equipped to deal with the situation on your own. Again, you can contest the amount or make payment arrangements. Your best opportunity to do this before the IRS takes any legal action.
If you don’t qualify for a loan or don’t want to take on debt, invoice factoring may be an option. With invoice factoring, your business sells its unpaid B2B invoices at a discount to a third party known as a factor or factoring company. Your business gets upfront cash to pay off the tax debt before the IRS puts a lien on your assets and causes issues for your business. The balance is cleared when your client pays their invoice, so there’s no debt to pay back. This solution also works before you receive a CDP letter, so you can take a proactive solution and pay off your tax debt before the IRS gets involved. It’s ideal for businesses struggling to build good credit too, as approval largely depends on your clients’ credit rather than your business’.
3. Explore Tax Lien Financing
The primary reason bank loans and other funding options don’t work when you have an IRS lien is that the IRS already has a claim to your assets, which means you can’t use them as collateral. Therefore, getting funding before a lien is placed is generally best if you’re trying to pay off your tax balance with a loan.
It’s worth noting, however, that the IRS takes what’s known as “first position” in these situations. Another entity could, in theory, take second position. That means if an asset is liquidated, the IRS collects what its owed from the asset’s sale first. If anything is left after, the entity in second position collects what it can from the sale of the asset after. For instance, if you owe the IRS $25,000 and owe another creditor $5,000, and an asset levied is worth $27,000, the IRS gets the full $25,000 owed, and the second creditor gets $2,000 of the $5,000 owed.
Most lenders will not take second position because it’s risky for them. However, the IRS sometimes does so if it increases the odds of being paid in full. Most loans don’t accomplish this task. Factoring differs because it provides upfront cash as you complete work or deliver goods. In this respect, it allows you to take on work you might not otherwise be able to afford to accept and expand your business. Once you find a factoring company you want to work with and have a tentative agreement in place, you’ll obtain IRS subordination of the lien. In other words, the IRS agrees to take second position, and the factoring company takes first. Although it may sound complicated, an experienced factoring company can walk you through the process and help you get established.
How to Navigate Tax Return Issues, Manage Public Assistance Payments, and Effectively Utilize the Appeals Process
- Filing Accurate Tax Returns and Public Assistance Payments:
Filing accurate tax returns is essential to maintain compliance and ensure the correct assessment of taxes owed. Properly reporting income, deductions, and credits can help prevent complications and potential audits.
It’s important to understand how tax return issues can impact public assistance payments. Changes in reported income or filing status may affect eligibility or the amount of assistance received. It’s advisable to consult with relevant public assistance agencies to stay informed about reporting requirements and potential consequences.
- The Role of Revenue Officers and Appeals Officers:
Revenue officers are IRS agents responsible for enforcing tax laws and collecting taxes owed. They may be involved in resolving tax return issues, addressing unpaid taxes, and assisting with the collection process.
Appeals officers, on the other hand, are individuals within the IRS who handle appeals related to tax matters. They provide an independent review of cases and facilitate the resolution process between taxpayers and the IRS.
- Automatic Withdrawal Monthly and Arrears on Income Taxes:
To address tax debts, the IRS offers the option of automatic withdrawal on a monthly basis. This arrangement allows taxpayers to make consistent payments towards their tax arrears, helping them gradually resolve their outstanding tax liabilities.
Arrears on income taxes refer to the unpaid taxes from previous years. Navigating this situation requires careful consideration of payment options, negotiation with the IRS, and adherence to established timelines.
- The Appeals Process and Potential Bankruptcy Relief:
If you disagree with an IRS decision or assessment, you have the right to appeal. The appeals process provides an opportunity to present your case to an independent appeals officer, who will review the facts and consider a fair resolution.
In certain circumstances, taxpayers facing insurmountable tax debts may explore bankruptcy relief as a means to address their financial situation. It’s important to consult with a bankruptcy attorney to understand the implications, eligibility criteria, and potential consequences.
Secure Your Tax Lien Financing Through Viva
Whether you’re trying to avoid a tax lien or already have one and are trying to work out a payment plan with the IRS, Viva can help. Contact us for a complimentary rate quote.
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