Blog post by Robert B. Teuber
When a business owes a tax debt, it is commonplace for the IRS to file a tax lien to secure their interest in collecting the liability. In many ways the IRS views this as a reasonable (albeit unilateral) decision to grant itself a mortgage on all of the taxpayer’s assets owed before or after the lien filing. Taxpayers that have to deal with the crushing impact of these stigmatizing liens often ask whether liens can be avoided. In some cases, they can be.
In February 2011, the IRS announced what they called the “Fresh Start Program” which increased the dollar thresholds at which it would file a lien against taxpayers owing unpaid taxes. The move was welcomed by those with liabilities below the threshold which, at the time, was increased from $10,000 to $25,000. On January 20, 2012, the IRS again increased the lien filing threshold; this time up to $50,000. It has also increased the time frame over which a debt can be paid from 60 months to 72 months. This means that IRS agents are now authorized to refrain from filing a tax lien against certain taxpayers with debts between $25,001 and $50,000 provided that the debt is paid off in 6 years. There are, however, limitations on who qualifies for the benefits of these latest changes.
The Memorandum announcing the changes includes the following limitations:
- Qualifying taxpayers include only individuals or out of business sole proprietorships.
- The taxpayer must enter into an installment payment plan under which the monthly payments are made by direct debit from a bank account.
- The IRS must verify that the payment plan is supported by the taxpayer’s financial condition. This means that the new 72 month payment plan operates as a cap on the repayment terms and not as an automatic timeframe over which a taxpayer is allowed to pay the debt.
The impact of the change is that the IRS collection agents now have it within their authority not to file tax liens against qualifying taxpayers with debts up to $50,000. Whether they will refrain from filing a lien will still depend on the particular circumstances of each case and such arrangements come with certain strings attached. For those who do qualify, however, this is certainly a welcome move by the IRS.