For many business owners who find themselves dealing with an IRS lien, the story sounds something like this:
First, the business starts having cash flow issues. Next, paying employees and vendors becomes strained. Then, if the cash flow issues aren’t resolved, more critical expenses like rent go unpaid.
Before long, paying employment or business income taxes takes a back seat so the business owner can play catch-up with other expenses.
If this pattern continues, it isn’t long before the IRS takes notice and begins executing collections efforts.
What Is a Tax Lien?
One of the more common among the IRS’s tools for enforcing tax debt collection is the filing of a tax lien, which is the IRS’s legal right to your business’s property—including real estate, equipment, and receivables—to secure payment for unpaid taxes.
Unless the lien is lifted, the property that used to belong to the business remains, at least partially, the property of the federal government.
The good news is that small business IRS tax liens can be dealt with effectively, and there are proven strategies that you can employ starting today that can help bring you peace of mind if you’re managing a tax lien issue of your own.
This article outlines those strategies with some key tips to help you navigate your way through this, either with or without professional help from us.
What To Do First
Receiving a notification of the IRS’s intent to file a tax lien can be a sobering and worrying experience. It’s important to look at the situation impartially and develop a plan for how to respond.
[Important: Of all the things you could do in response to an IRS tax lien filing, doing nothing is your worst choice. Inaction and neglect will only force the IRS to pile on additional fees, penalties, and perhaps even seizures (known as levies). So, before you do anything concrete, make the decision to take this seriously and address the problem head-on.
If this is overwhelming for you, professional help is available. Traxion Tax specializes in walking small business owners through the process of remedying tax liens, and our track record speaks for itself. To learn more, schedule a risk-free consultation with a member of our team by visiting this page now.]
After you’ve decided to take action, a good next step is to confirm the validity of the lien that has been filed or is in the process of being filed.
This can be done by reviewing your IRS account and tax records. Mistakes happen, and confirming the validity of the lien ensures that you’re not penalized unfairly.
Action Steps:
- Log in to your IRS account at IRS.gov to review your account balance and notices.
- Cross-check the lien amount with your business’s financial records.
- If you find discrepancies, document them before moving forward.
Communicating with the IRS
As unenjoyable as it may be, contacting the IRS about your tax lien is critical to resolving this issue.
The IRS keeps very detailed records of taxpayer communication, and even if you contact them simply to acknowledge receipt of their communications, that alone contributes to your good favor with them.
After you’ve determined that the tax debt the IRS says you owe is legitimate, it’s time to reach out to them directly to forge a way forward.
Action Steps:
- Call the number provided on your lien notice.
- Be prepared to discuss your financial situation and provide necessary documentation.
- Request additional time or payment options if immediate resolution is not possible.
[Note: Be very cautious of scams. Many scammers will pretend to be the IRS and ask you to send them money directly. If your letter includes instructions to send money to anyone, do not. Instead, contact the IRS to validate the authenticity of the letter you have received.]
Exploring Payment and Debt Restructuring Options
By now, you’ve confirmed the validity of your tax lien, you’ve reached out to the IRS to discuss it, and you’re ready to proceed in resolving the debt by paying it back.
The good news is that the IRS offers various payment programs. Depending on your business’s financial situation, you may qualify for one of the following options:
- Installment Agreement
This allows you to pay your tax debt in monthly installments over time.
- Offer in Compromise (OIC)
With an OIC, you can settle your tax debt for less than the full amount owed if you can prove financial hardship.
- Subordination
This option enables another creditor’s claim to take priority over the IRS lien, which can help you secure business loans necessary to keep your business afloat.
- Lien Withdrawal
If you meet specific conditions, the IRS may withdraw the lien, removing it from public records. This typically requires you to fully pay your tax debt or enter into a Direct Debit Installment Agreement.
Life after the Lien
Moving into the debt payment phase can be financially uncomfortable, but it is necessary to exit the active lien phase. After that has happened, it’s important to reassess your business’s financial health.
Make it a point to create a sustainable financial strategy to prevent future tax issues, which can include the following:
- Review your budgeting and cash flow practices.
- Set aside funds for estimated taxes to avoid underpayment penalties.
- Work with a tax professional (like a dedicated team member at Traxion Tax) to ensure compliance with future filings.
An IRS lien doesn’t have to spell disaster for your small business. By understanding the lien process, exploring repayment options, and seeking professional guidance, you can navigate this challenging situation effectively.
Take proactive steps today to protect your business, resolve your tax issues, and ensure long-term success. And, as always, never forget that we’re here to help. Contact us today to learn more about the options we have available for expert IRS tax debt resolution services.