The Internal Revenue Service (IRS) tracks tax obligations and enforces federal tax code. Taxpayers file tax returns to reconcile estimated payments throughout the year with the actual income tax due. If they haven’t paid what they owe in full, then interest and penalties may begin accruing.
In scenarios where people fail to pay everything that they owe promptly, the IRS engages in collection activity. Federal income tax collection efforts usually start with notices and warning letters. However, if taxpayers do not make an earnest attempt to pay what they owe, then the IRS may pursue more aggressive collection tactics.
Using liens and levies to force repayment is a common collection strategy. Notice of the IRS taking action against resources can lead to a number of major consequences, including the three common issues briefly explained below.
1. Difficulty securing credit
People applying for credit cards and other forms of personal credit are subject to a credit check and asset verification. When an individual’s most valuable assets, such as bank accounts or real property, are subject to IRS levies or liens, creditors may refuse to offer credit or may extend offers with unfavorable terms.
2. Limited financial flexibility
People can often leverage their existing assets in times of financial need. When a taxpayer is subject to an IRS lien, the lien encumbers the affected property, preventing the person who owns it from transferring it or selling it. Even refinancing is typically impossible without first making arrangements to pay the lien in full.
3. The loss of assets
The IRS doesn’t immediately foreclose on a property subject to a lien in most cases. The goal of enforcement efforts is usually to inspire a taxpayer to communicate with the IRS and take responsibility for their debts. If taxpayers aren’t assertive about communicating with the IRS and working out an arrangement, the loss of their resources could be a legitimate concern. Those who did not respond promptly to warnings about upcoming lien or levy attempts still have an opportunity to correct the situation.
Securing appropriate guidance can help taxpayers respond appropriately to an upcoming lien request or address the impact of a lien recently secured by the IRS. Taxpayers can protect their assets and correct the situation if they learn about the law and begin communicating with the IRS about their tax debt as soon as possible.