What Your Clients Should Know About Federal Tax Liens

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Craig W. Smalley, EA
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Taxes can be assessed for different reasons. The most common reason tax is assessed is that a tax return has been filed and an amount is due. Other ways of assessing taxes are through notices of deficiency (NOD). An NOD can be issued after an examination, appeals, or something similar.

Once a tax has been assessed, the taxpayer is informed through a letter. If the taxpayer doesn’t pay the NOD, then he or she is put into the Automated Collections System (ACS). ACS will send more threatening letters, every 30 days. Eventually, a letter will come that is a Final Intent to Levy Notice, giving the taxpayer 30 days to appeal the amount being owed. If nothing is done, the IRS will then issue a tax lien against the taxpayer. The IRS files liens to protect the government’s interest on the amount of taxes being owed. Tax liens are filed with the clerk of the court, which is made public information. The lien will also go on the taxpayer’s credit report. With a tax lien, the IRS can start the collection of the tax that was owed.

What Happens Next?
The next step for the IRS in order to retrieve the debt owed is to do an asset search on the taxpayer. The IRS will try to locate the taxpayer’s bank accounts, employers, and other assets that the agency can levy in order to cover the taxpayer’s debt. The IRS can place a lien on the property that the taxpayer owns. For instance, it is common for the IRS to put a lien on a taxpayer’s home or automobile. If you’re familiar with watching movies, you would think that the IRS seizes property all of the time. However, the IRS isn’t an institution that seizes property, but the US Department of Justice (DOJ) is.

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