You don't always realize a problem exists until it's too late. This can be particularly true of tax issues, which have an odd way of sneaking up on you at the worst possible time. While you might assume that all is well with your tax filings, the reality is that you may simply be unaware that trouble is looming.
When you have a tax problem, such as a delinquent balance, the IRS will send you a Notice of Assessment. This letter will inform you of how much you owe, from what tax year and how long you have to respond. But occasionally, notices get lost or are never routed to you because of an out-of-date address. So, what happens if you have an unattended tax bill? The IRS might just respond with a lien.
The IRS expects you to pay any tax debt promptly. When you don't, they are compelled to hedge their bets. The tax lien does just that: it is a claim on any property that you own or take possession of for the life of your tax balance. In this way, the government is securing their interest in the event that you never get around to paying voluntarily.
But how does a lien actually affect you? First, liens are a matter of public record. This means that creditors - and anyone else who cares to look - can see that you have a delinquent tax bill. Since the lien informs other creditors that the government is first on line to collect from you, your ability to take on new lines of credit becomes greatly diminished. Similarly, your credit score can plummet. Securing a mortgage, obtaining a personal loan or even getting approved for a new credit card can be next to impossible.
Liens can be far more damaging if you own a business. Since your ability to borrow is compromised, any sudden company emergencies which require funds can prove catastrophic. Moreover, if a tax bill is neglected long enough, the IRS may decide to take action against the property under the lien...which may include your business. The property you own and operate, along with your inventory and company equipment, can be seized.
Remember, anything you own is up for grabs if you have a lien and don't pay your tax debt. While the IRS won't take the shirt off your back, they can seize vehicles, your house and the money in your bank accounts. And reclaiming seized assets and property is unlikely. If the IRS has reached the point where they're taking your possessions, they will not be inclined to negotiate a return.
If you already have a tax lien, the only definitive way to get it removed is to satisfy your tax debt. In some cases, the IRS will consider lifting the lien on certain property if this enables you to free up capital. For instance, if you are able to sell your home, you can use the proceeds to pay towards your tax debt.
No matter what, the sooner you get your tax issue resolved, the sooner you can get out from under the lien. If you don't yet have a tax lien, you can take some preventative action. You can request a no-cost consultation with a tax resolution company to explore your options. Determining a solution to your tax problem will be far more affordable than waiting for a tax lien to cripple your credit.