Need to Resolve a Federal Tax Lien?

Do you need to resolve a Federal tax lien?

A Federal tax lien is not only a short-term financial burden, but the long-term effects are potentially devastating to consumer credit, employment and purchasing power, tax attorney Stephen J. Dunn wrote in a recent Forbes article. The IRS maintains the lien for 10 years before a tax levy is placed on consumer assets, said Dunn, a civil tax and asset forfeiture litigation expert. 

The importance of resolution

A tax lien is attached to all personal and business assets, which results in a negative credit rating. In turn, when this appears on consumer credit reports, a negative rating can adversely impact consumer ability to secure credit and future assets.

“The three major credit reporting agencies include notices of Federal tax liens (NFLTs) in the taxpayers’ credit reports, affecting the taxpayer’s credit standing,” noted Dunn. “The Internal Revenue Service records NFTLs as a matter of practice, to prevent third parties who purchase property from the taxpayer, or lend money to the taxpayer taking a security interest in the taxpayer’s property, from acquiring an interest in the taxpayer’s property superior to the Federal tax lien.”

The Federal tax lien also accrues penalties and interest in addition to the tax amount owed, which can place consumers in crippling debt.

The effects of Federal tax liens

A cautionary example of the impact a tax lien can have on a consumer occurred with lobbyist Steven Pigeon, who has $244,000 in tax delinquencies, according to a recent report in Buffalo News. In addition to two tax liens placed on his assets for $126,000 and $118,000, his consulting firm has experienced numerous contractual cancelations that have hindered his ability to pay the tax delinquency.

“As a result, Pigeon said two weeks ago that he was bolstering his new lobbying activities through a firm he and longtime associate Gary R. Parenti formed last year,” the news source noted. “Chief among his new lobbying clients was the Seneca Nation of Indians, which announced Tuesday it was canceling its $180,000 contract with the Pigeon firm – PAPI Consulting LLC.”

However, the IRS has negotiated a payment plan with Pigeon as part of their ongoing efforts to increase the threshold amount for tax liens filed. This increased dollar threshold adjusts to inflationary changes, which enables high net worth individuals to have tax liens automatically filed at a fixed amount.

Federal tax lien resolution options

Consumers have several options to resolve Federal tax lien status, although withdrawal is chief among those alternatives. 

“The IRS implemented something called the ‘Fresh Start’ initiative, which is a series of procedures and policy changes directed toward taxpayers facing collection from the IRS,” noted the Fox Business website. “One of the changes includes a policy that allows certain taxpayers to request that their tax liens be withdrawn, even before the underlying tax debt has been paid.” 

Ultimately, with the federal tax lien withdrawal option, resolution is a readily available alternative for consumers.