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An overview of tax liens and bank levies for delinquent taxes

It is not uncommon for an Orange County resident to be subjected to a tax lien or levy for unpaid taxes. A lien is type of security interest in property imposed due to a debt. A tax lien is often in the form of a wage or bank levy. A wage levy is essentially like having your wages garnished. When the IRS imposes a bank levy, it places a freeze on a taxpayer's bank account and reserves the right to use the bank account funds to pay a tax debt. Additionally the IRS may seize property or other assets that are equal in value to a tax debt.

Tax liens have proliferated due to the poor economy but many taxpayers are fighting back with the help of experienced tax law attorneys. Often a tax attorney can help release a lien before the IRS seizes property because the IRS is more interested in compelling a taxpayer to be compliant rather than actually seizing property. A tax attorney can help a client in many ways including filing a petition for financial hardship, negotiating installment payment plans, requesting a partial discharge, and filing back taxes.

The Tax Court recently decided a lien issue adversely to the IRS. In the Tax Court case a construction company fell behind on its employment taxes and the IRS imposed a lien. Ironically the IRS' lien made it impossible for the construction company to pay its tax obligations because the lien caused a bank to withdraw the company's $1 million line of credit. The company requested that the IRS lien be subrogated to the bank's claim. This means that the bank would have first priority in the company's receivables in the event the company could not pay. The IRS refused to subrogate its lien which caused the company to fall behind on its taxes again.

In our next post we will discuss how this construction company fought the IRS' decision and prevailed before the tax court.

Source: Morgan King, "Tax Court Weighs in on Lien Issue," Dan Pilla, Oct. 4, 2011

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