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Tax liens, tax levies and taxpayers' options

The pop-culture press loves to report on the foibles of celebrities - including their problems with tax debt. Among those struggling with it recently are apparently the actor Nicholas Cage and former football hero O.J. Simpson. They are not alone, of course. Many people have tax debt.

If you owe tax debt, the IRS or a state revenue agency such as the California Department of Revenue can take collection action against you. The tax collectors can try to get your paycheck through a bank account levy. This process is sometimes called a tax lien.

A federal tax lien goes beyond your wages, however, to include an assertion of the government's interest in other types of property you may own. This includes not only your bank account, but also personal property and real estate.

Technically, a lien is not the same as a levy. A lien is what secures the government's interest in your property for unpaid tax debt. A lien is what a government agency uses to actually take your property.

When the IRS pursues a tax lien, there is a clearly established process it must follow. In particular, the IRS must file a public document that notices other creditors of the government's claim. This document is called a Notice of Federal Tax Lien.

The effect of the tax lien can be far-reaching. It isn't only that it applies to all types of assets you have. A tax lien also applies to property you acquire while the lien is in place.

There are other consequences as well. A tax lien may affect your ability to obtain credit. If you are a small business owner, the lien may even extend to your accounts receivable. And if you are considering filing for bankruptcy, the tax lien may remain in place despite the bankruptcy filing.

But facing a tax lien shouldn't be a matter for despair. It may be possible to work out a settlement of your tax debt with the IRS or California Revenue. One of the options for doing this is with an Offer in Compromise. An installment agreement is another. An experienced tax lawyer can advise you on an effective course of action.

Source: "Understanding a Federal Tax Lien," IRS.gov

Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our IRS tax lien page.

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