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How to Handle IRS Tax Liens

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A federal tax lien is filed when a client fails to pay owed tax debt after receiving their first bill. The lien gives the government a claim against the client’s present and future assets and property without actually removing the property from the client’s possession (which is the difference between a levy and lien). Filing a federal tax lien may seem like a passive way for the IRS to collect tax debt, but a pending lien can be a serious impediment to your client’s life. In addition to the stress of having a government lien in place, your client is limited in how they can deal with their assets and property.

Why a Federal Tax Lien Matters to Your Client

As of April 2018, credit bureaus no longer report tax liens, which means the lien shouldn’t affect your client’s ability to take out a credit line or get a job, but that doesn’t mean it can be ignored. During the time a federal tax lien is active, the client can’t sell assets or property without turning the money gained in the sale over to the IRS. Everything your client worked hard to accumulate and everything they purchase while the lien is in place, in essence, belongs to the IRS until the lien is lifted.

What Can You Do For Your Client?

Obviously, paying the tax debt is the easiest way to get the IRS to release the lien. But if that’s not possible for your client and if an Offer in Compromise can’t be reached, there is a way to have the lien removed.

If your client owes less than $25,000 in debt or can pay the debt down to that amount, you can set up a direct debit Installment Agreement (using Form 433-D). Once three consecutive direct debit payments are made, you can then fill out an Application for Withdrawal of the federal tax lien (Form 12277) to have the lien lifted. When a lien is withdrawn, it’s as if it never existed.

How IRS Solutions Software can help

The forms to help your client escape a tax lien can leave you swimming in data. But if you use IRS Solutions as your CPA Accounting software, much of the work is done for you. Our software has the ability to directly request, download, and analyze your client’s unredacted wage and income transcript through the IRS e-services Transcript Delivery System (TDS). Once that data is in our system, the software automatically populates the forms you need to calculate and file a direct debit Installment Agreement and, eventually, an Application for Lien Withdrawal.

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