Tax liens can affect your personal and business finances, damage your business credit, and risk your personal and business assets. A tax lien can have financial consequences similar to filing for bankruptcy and result in government confiscation and selling your property. Tax liens result from incomplete and timely payment of trade taxes, and the IRS issues approximately 1 million liens each year. If you run the risk of failing to pay your business taxes, it’s essential to understand your options.
We’ve gathered all the information you need about tax liens and how they affect your small business.
So let’s dive deeper and examine what a tax lien is.
What is a tax lien?
A tax lien is a federal legal title to your assets. The IRS can place a tax lien on your property if you ignore it entirely or refuse to pay due tax obligations. A tax lien doesn’t force you to sell the property to pay your taxes. But it ensures that the IRS will take the proceeds to pay the taxes you owe when you sell it. Tax liens can affect your property, including your home and other real estate, vehicles and other personal assets, financial assets, and any commercial property you own. It can also be attached to assets you buy after the IRS issues a lien but before you pay to settle it.
If the IRS sends you a bill, but you ignore or refuse to pay it, they must send you Letter 3172, a Federal Tax Lien Filing Notice, and your right of hearing under IRS 6320. If you do not agree to a lien, you have 30 days from the date of the appeal letter. . The letter contains instructions on how to file an appeal.
If you miss the deadline for filing a complaint, you can use Form 12153 to request an equivalent hearing. However, this type of examination does not preclude a tax bill; suspending ten years, the IRS must try to collect your debt or allow you to go to court to appeal the decision of the IRS Office of Appeals.
How does a tax lien affect me?
The IRS files Federal Tax Lien Notices with local government agencies such as the Secretary of State or County Registrar in the area where you live, do business, or own property. The lien does not specify what property is affected – the lien automatically applies to all real estate and personal assets and any future assets you may acquire during the life of the lien. And because it’s connected to all of your assets, it can affect your ability to sell or refinance your property and run your business. Also, in most cases, federal tax liens cannot be released in bankruptcy.
What does it mean if you have a tax lien?
If you owe taxes and the IRS has imposed a federal tax lien on you, here’s what can happen.
- Your credit rating could go down. A tax lien may no longer appear on a credit report, but the IRS can still file a public notice of a tax lien, letting creditors know that the government has a lien on your property. This can jeopardize your ability to get a loan.
- This can jeopardize the home’s sale or refinancing: Tax liens often appear in title searches. If you have equity in a home that you want to sell or refinance, You may have to use some of it to pay your taxes.
- This can take up a lot of time. The IRS is directing many taxpayers who default to the Automatic Collection System (ACS), which could mean spending hours in call center queues. Some taxpayers could be assigned to a tax officer, which might mean in-person visits.
- You can end up with a tax levy: If you do not pay taxes after the IRS has filed a federal tax lien, the IRS may issue a letter of intent to file.
How To Buy Tax Liens?
Investors interested in purchasing tax liens need to learn how real estate auctions work. While these processes are not complicated, they can surprise new investors. If you’re interested in getting started, read these steps to purchase a tax credit:
- Learn more about tax liens and property auctions: There are two ways to benefit from investing in tax liens: interest payments or property ownership. The whole process should be done carefully and under the guidance of a real estate attorney. The acquisition of a tax lien usually occurs at a real estate auction. Before attempting to bid for a tax lien, thoroughly understand the property auction process.
- Define Destination Areas: Tax liens are determined by region, so it can be helpful to narrow down your destination before looking for an investment. Note that financially distressed areas may be more likely to offer tax liens. Check public records to determine the financial health of the districts in your area and which areas are the most promising.
- View a different property: The auction does not allow the buyer to view the property inside before the sale. Since you have never seen the property without the owner’s approval, you may not know the condition of the property. However, if you get into a bidding war and overpay, you could take ownership with negative equity before you even unlock the front door. You must do your homework and research potential properties before attending an auction.
- List and Bid at Home: Once you’ve identified a few properties you’re interested in, it’s time to enter a property auction. Set your maximum bid before you visit to avoid accidental overpayments. Then join the auction and bid on the property you want. Be sure to check the local payment terms (cash or check) so that you are prepared if your offer is accepted. If you are the winning bidder, you become the property owner and lien.
- Notify Homeowners: Follow the laws in your area after receiving a tax lien. Sometimes it may be necessary to notify the owner by sending a registered letter to the property. The letter should tell them you purchased a lien and how much tax they must pay on the property. Due to the entire foreclosure process, the letter is unlikely to surprise the homeowner.
- Collect Your Money (or Property): Once all parties understand the foreclosure agreement, your only job as an investor is to collect interest while the homeowner makes payments. The period may vary, but the average is 120 days. If the homeowner has no money, the winning bidder becomes the lien holder and, ultimately, the homeowner. Depending on the other liens on the property, you may need a good amount of equity to pay them all off. Always be prepared for this eventuality when investing in tax liens.
Tax liens are one of the many real estate niches that can be lucrative but not without risk. The best way to reduce this risk is to increase your real estate knowledge to make your next investment deal the most profitable.
When faced with a tax lien, you need a professional ANSWER you can rely on; This is where the Tax Lien Code comes in. Our honest and licensed professionals will assess your situation and give you the necessary answers, giving you peace of mind and the confidence to understand your options.