Tax Levies And Liens – Killer IRS Advice Chapter 6
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Tax Levies, Liens, And Subordination
A lien is a legal claim against real property filed in a county court house.
A levy is the action of taken an asset (wages, bank account, etc.) to satisfy payment of a debt.
A subordination is getting the IRS to allow another creditor a higher collateral security position in your assets.
If you get a levy notice, follow the procedures for contacting the issuer and resolving the matter.
A good source for detailed information for a lien subordination is IRS Pub 764. Do a Google search and download a copy. It has a great section on how to prepare the application and what to do afterward.
Reasons the IRS will give you a subordination. a) You can offer approximately 3 times the value of your liability as collateral, or you can buy an insurance bond for approx. 3 times the liability. b) You can show that it will be easier for the IRS to collect more money by doing the subordination, like getting all the proceeds on the sale of your house, for example.
I have received approval for several subordinations depending on the circumstances. The following points should be helpful for your success.
1.You should acknowledge that you could and probably should have stopped this much earlier in the collection process. Understand that the IRS is not going to be sympathetic to your concerns about how tough it will be to successfully conduct your business. The IRS puts a lien on to protect them against 3rd party creditors getting your assets before they do. So why would they be willing to give up their creditor protection? Their general policy is not to remove or subordinate liens (or levies) unless you fit one of their acceptable categories.
First consider the question of whether or not you can live with the lien. It’s usually not as bad as you initially thought. Is it hurting your credit? By the way, the IRS does not file the lien with the credit bureaus, so don’t ask the credit bureaus to take it off. The credit bureaus pick up the lien on their own from court house records. You can remove it for a short time by sending a letter to the credit bureau explaining how this is not yours, (assuming that it isn’t), or that it is grossly overstated. If there is no confirming response within 30 days, the credit bureau must remove it until they receive a confirming response. But this is the subject for a manual on credit repair. Anyway, you can use someone else’s credit or don’t use any credit till the liability is paid or resolved. Many times people you buy from will be sympathetic and help you work around it. I want you to consider living with the lien and focusing on paying off the liability as soon as possible. It’s better than throwing your money away paying some misleading representative that promises to remove the lien using some type of trick or exceptional experience!
Liens are specific to the county that they are filed in. I have advised several people to quickly sell property located in counties that the IRS did not have a lien on. You need to do a lien search in each county to find out. Some counties have records on computer. In some you have to go to the court house to check liens. Otherwise you can pay an attorney or paralegal, or a lien service on the internet to check for you. It’s better to sell the property and give that money to the IRS to lower your debt, than to try to spend the time and money to untangle it once the lien is filed in that county.
You can also sell property that you have a lien on. WHAT? Well, you can’t convey title, but if you sell it for fair market value, you have not broken any laws. Who would buy it? A relative or friend or someone else who really wants the property, and understands and is willing to wait for the IRS to release the property once the fair market value (money) is offered to them. The risk here of course is the IRS should agree with your value of the real estate. I don’t recommend doing this on your own.
On the other hand, if your asset is not real property, the IRS has greater trouble recovering the transferred property. I know of many people who have sold their cars, boats, and pulled out the money from their bank accounts while a levy was in place and got away with it. I can’t advise anyone to do this without knowing all the details of their situation. Most people will be safe taking out cash, especially if you show it went to food, rent or mortgage, medical, and other general living expenses.
If You Really Need A Lien Subordination
- Liens really hurt companies when sales and financing are inhibited. A business could be ruined without a subordination. A subordination may be needed so a bank or accounts receivable financing company may become a first position creditor.
- Make sure you answer all items on the application for a Certificate of Subordination of Federal Tax Lien, and include all documents that explain what you are trying to show them. Then when finished, sit back and ask yourself, “If you were an IRS employee and got your application, would you understand and approve it?” Would you be convinced that it was in the IRS’s best interest to let you continue your business without the lien, and pay them back the money you owe? If not go back and make any necessary changes.
- When you are satisfied, sent it to your revenue officer, and call to make sure they received it. Find out when they plan on sending it to the subordination group at the IRS. Then call at that time to make sure it went out. What? You don’t have a revenue officer assigned to your case, no problem. Contact the subordination group directly. Request that they handle it immediate if “time is of the essence”. Be nice, always remember to ask as if you are asking for favors. Don’t tell the IRS employees what their job is. Make the appropriate follow up calls to get it through the system.
- Bad News – the IRS gets a lot of these requests, so it still may take from two weeks to three months! Sorry, but I have had people try to sell their house at a high sales price, so they could use ALL the profits to pay the IRS, and the IRS still couldn’t do the subordination in time. They lost the sale. Sometimes it is hard to convince the IRS that it is in their best interest to do the release. Our Federal government moves slowly to their own disadvantage sometimes. Some companies I know of have gone out of business because they couldn’t factor their accounts receivable anymore. Recently, I was told that the IRS doesn’t want to handle subordinations for receivable factors! How’s that for helping companies go out of business?
- You could file an emergency collection appeal to release the lien, but it still has to go through the subordination group. The collection appeal could be used prior to the lien being filed, or to appeal levies and other collection actions. Now you see why it is so important to head off a lien before it happens, when you intend to sell real property to help pay off an IRS debt. Don’t become a victim to this.
- You can always take this to the Taxpayer Advocates office. If you prove the hardship to them, they may take your case on.
- If you can show that the IRS didn’t give proper notice, such as a notice of deficiency or another 30 day notice, you can appeal the lien. However, even if you win, you still didn’t resolve the problem, and they can always put it back on, once they cure the notice issue. You don’t fare better in appeals one way or the other, so why not just do a CDP (collection due process) or CAP (collection appeals program) appeal based on hardship, and establish a payment plan, offer in compromise, etc. The time that I would consider fighting a lien based on not given proper notice if a) I can prove it and b) if I was about to sell real property and if not for an immediate release, I would lose the buyer. The IRS publication 1660 explains your appeal rights. Obtain a copy from the IRS’s website.
- You can get a release to obtain a bank loan.
- I have gotten releases to pay off accounts receivable factors in the past. Currently the IRS claims that they won’t do this anymore. If this will cause you to go out of business, I would file an appeal or get the Taxpayer Advocate involved.
We call 1-800-913-6050 to discuss lien releases with the IRS. This is a division for releasing liens. This is for the times you paid the liability, or it should have been removed for another reason and you want action now to remove the lien. Once the liability is fully paid, the lien is no longer valid and should be removed.
If they give you a hard time then contact the Taxpayer Advocate’s office for help.
If you want a lien released because of hardship reasons, then you need to file an appeal.
You should file an appeal directly with the collection officer or ACS. If no one is assigned you can file directly with your local appeals office. Be careful, sometimes I’ve had appeals secretaries tell me that they can’t accept an appeal unless it comes to them from collections. Don’t believe it. If you are about to suffer a hardship, and you have no one in collections assigned to your case, just call an appeals officer or visit your local appeals office and get them to accept your appeal. I have never failed at doing this.
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