Federal Tax Lien Help
Occasionally someone will call our office freaking out about an IRS letter stating that a lien is being filed against them. In this post, we’ll discuss what a lien is and isn’t and how to deal with it.
What does a lien actually mean/do?
When you owe back taxes to the IRS, they will generally file a tax lien notice against you. Tax liens are a matter of public record and available for anyone to look up. They are typically filed for any balance due that exceeds $10,000. However, new tax liens are usually filed for less than that amount if you continue to pile on additional tax debt in the future.
So what exactly is a tax lien? Basically, it’s a claim against your property. A tax lien takes a higher priority over most other kinds of liens, and after 180 days jumps ahead of some lien types it doesn’t automatically supersede. A Federal tax lien will not jump in front of a mortgage, or a local property tax lien, but it can jump ahead of just about everything else.
The important aspect of a Federal tax lien is that it covers ALL of your property. For example, the mortgage on your house is usually only secured by the house itself. But when it comes to a tax lien, it is actually “secured” by everything you own. This means the clothes on your back, the money in your checking account, your retirement accounts and even your paycheck. That’s right; a Federal tax lien provides the government with the ability to claim your paycheck. That doesn’t mean they’re going to take it, it just means that they can.
A Federal tax lien also shows up on your credit report. This can impact your credit score, and make it difficult to obtain employment, as many employers will use this information in their hiring decisions.
It is important to understand that a lien is NOT a levy. A levy is an administrative order directing a 3rd party to physically hand over cash or property to the government that is covered by the lien. Thus, for 99% of people, a Federal tax lien is actually harmless, and has zero impact on their life or business. Sometimes, however, the lien itself creates a bad situation. In those cases, there are things that can be done with the lien that can help put you in a better position.
Lien Withdrawal
In extremely rare circumstances, it may be possible to obtain the complete removal of a Federal tax lien. In order to achieve this, the taxpayer (or their hired professional) must demonstrate two things:
- The lien is creating an undue economic hardship upon the taxpayer
- Removing the lien will help facilitate collection of the tax debt
Basically, you have so show the IRS that the pure existence of the lien will cause a dramatic loss of income. For a business, a lien may interrupt a factoring agreement or a line of credit, which is required for them to operate. For a person, the existence of a lien might mean the loss of a security clearance, and therefore loss of a job.
Typically, if one can prove the first bullet, then they can often prove the second. For example, if a business continues to operate, and you get to keep your job, then you both can make payments to the IRS, which is what is meant by “facilitate collection.”
Lien Subordination
Another tactic that one can sometimes take is to keep the IRS tax lien in place, but subordinate the government lien to some other lien. When we do this, we essentially get the IRS to place themselves in second priority position, underneath somebody else.
The most common reason for doing this is to place the IRS lien secondary to a bank financing lien, such as a factoring agreement, line of credit, or an operating capital loan. Many banks will cut off funding on a loan or line of credit if they are not in first position. Thus, subordinating the tax lien keeps the bank happy by keeping their lien in first priority over the IRS. This keeps you operating, and thereby “facilitates collection.”
Lien Discharge
It is not uncommon for somebody to have one particular asset that is worth a bit of money. Sometimes selling that asset can bring in enough money to help pay down the tax debt, or selling the asset will eliminate the monthly payment on the asset, thereby allowing you to put that money towards the IRS bill each month. See how this all keeps coming back to that “facilitating collection” point mentioned above?
Let’s say you own a vintage 1957 Chevy. It’s worth $60,000 but you still owe $25,000 on it. You’re currently making monthly payments of $500 toward the balance owed. You obviously don’t want to sell this car, but it will make life a lot easier if you did, since you owe the IRS $100,000 and they are going to start taking your paycheck via wage garnishment if you don’t do something.
So, you decide to sell the Chevy. The problem is that the IRS lien prevents you from selling it. Not only does your loan company have a lien on the car, the IRS lien covers it, too. Thus, we need to remove the IRS lien in order to sell the car. The process of removing the IRS lien from this one piece of property is called a lien discharge, and you obtain a Certificate of Discharge releasing this one asset only from the lien.
With the Certificate of Discharge in hand, you can sell the car. This in turn allows you to pay off the loan without the IRS making a stink about that $25K going to the bank. Furthermore, you then you have $35K profit from the sale that you give to the IRS, plus free up $500 per month to pay the government. This is not an ideal scenario for most people, giving up a beloved possession. But it’s far better than the IRS seizing 70% of your paycheck every month.
Conclusion
By itself, an IRS tax lien itself really has no teeth. It’s the things that come several months after the lien filing (e.g. a tax levy) that really cause trouble. However if you have a tax lien, it’s probably best to deal with it using one of the options above. Especially if the path to resolving the tax debt itself involves doing things with assets, banks, keeping financing open or preventing the loss of your job or business revenue.
The Truth About Settling Taxes for “Pennies On The Dollar”
Every year we here from taxpayers who have IRS debt and are looking for a solution. Inevitably, they will also make a reference to the possibility of settling their debt for less than what they owe. What usually follows is a conversation about what this actually means and how most people DON’T qualify for it. Let us elaborate.
In advertising, you’ll hear companies talk about settling back taxes for 20%, 10%, or even less than the original balance. What these ads, and the sales people whom you talk to on the phone, are trying to sell you is an Offer in Compromise service package. This package is a reference to the IRS Offer in Compromise (OIC) program, which allows eligible tax debtors to pay the IRS an amount of money that is less than what they owe in order to wipe out their entire tax liability.
The phrase “pennies on the dollar” was actually determined several years ago by the IRS to be a form of deceptive advertising. As a result, they explicitly instruct licensed practitioners that using this phrase is a violation of Circular 230, which is the handbook us practitioners must follow when working with the IRS. However, since the IRS doesn’t always have jurisdiction over firms that just market these services, it comes into the FTC’s purview to look out for these deceptive marketing practices.
Some ads, web sites, and salesmen are out there trying to convince taxpayers that what you settle for is some fixed percentage of your tax debt. However, this is blatantly incorrect. There is absolutely no provision in the tax code for allowing a taxpayer to pay a set percentage of their tax liability and just calling it good. This has never existed, and most likely never will.
Instead, the amount of your OIC settlement is calculated using a very, very strict formula. What’s even better is that this formula is NOT secret — it’s available on a worksheet in IRS publication 656B.
Based on this formula, if you have equity in assets that exceed your tax debt, you simply don’t qualify. Period. End of story. For most individuals, the common thing is going to be equity in your house or rental properties, or perhaps equity in a collection of classic cars, stamps, coins, guns, art, etc. If the value of ANY of that stuff is greater than your tax debt, you do not qualify for the OIC and cannot settle for “pennies on the dollar” – there is no way around this.
In the same vein, if you are a high income earner, it’s also highly unlikely you will qualify for the OIC. The reason for this is that the IRS only allows certain amounts of money every month as “eligible expenses” for housing, cars, food, etc. If your lifestyle exceeds these amounts, the IRS doesn’t care — they will only allow you to claim the National Standard expenses. Any monthly income over those amounts gets multiplied by either 48 or 60, and THAT number goes into your offer amount.
In these circumstances, you may qualify for a period of up to 12 months to make a “lifestyle adjustment” and reduce your living expenses to come into line with IRS standards. This will often involve selling luxury homes and getting rid of toys such as cars and boats. Keep in mind that these items are all covered by your tax lien, so any proceeds from the sale of these items technically is owned by the IRS, and should be paid over to them. A good tax representative can assist you with structuring these sales so that both you and the IRS get something out of it.
In closing, beware of anybody promising that your tax debt can be settled for some fixed percentage. That’s not the way it works and a skilled professional can show you if you stand a chance at qualifying for the OIC. Anybody trying to sell you on the percentage idea might as well be selling you swampland in Florida, and you’ll be best served to seek assistance elsewhere.
Tips For Nailing Your Job Interview
In these trying times, getting called in for an interview can be your one and only shot at getting hired. With that in mind, every interaction you have with a company’s staff must be carefully planned so that it’s not wasted.
We’ve conducted some job interviews back in our corporate days and you’d be surprised how many people miss simple opportunities to seal the deal. Here is what always impressed us with a candidate:
• Come prepared. Do you know about the role? Do you know what our company does? Do you have a copy of your resume? Coming prepared signals that you are interested and bosses like “hungry” candidates. It also indicates that you’re the type of person who does their homework. As a manager, whom do you want sitting next to you in that weekly update meeting, the staff who has a notebook full of answers or the person who barely remembered the meeting?
• Sell what makes you a fit. You might not have all the aspects of the job description. But if you made it this far, it means that they like what they see on paper. So sell yourself! Tell them what you do well, why you’re a pleasure to work with and how you think you’re a fit. When it boils down to it, the decision on who to bring on board is often swayed by who was better “liked.” If two candidates are equally matched, the one who typically wins is the one with the better selling skills.
• Tell me how you’ll make our lives easier. Hey, bosses have enough on their plate. Ideally, they would like it if you could come in on day one and pick up the job with minimal assistance. Since that isn’t reality, if you can tell them how you’ll make their life easier, you’ll stand a good chance of getting a job offer.
• Be gracious. Selling yourself is one thing, being cocky is another. Always speak humbly of what you can do, your competitors and your former employers. No one is perfect and there is always someone whom is better than you. It’s okay to be confident, just don’t let that boarder on being arrogant. Also, always follow up the interview with a thank you note or email. Bosses always remember who did/didn’t send one.
When it comes time to make a decision, hiring managers take many things into account. However, a lot of what is asked/garnered during the interview process is really more about you as a person. People like to work with others whom they can relate to, get along with and feel will do the job. If you follow the tips above, you just may sway things in your favor if it comes down to you and another candidate. Good luck out there!
Requirements of IRS Installment Agreements
It’s not uncommon for taxpayers who owe the IRS to start to panic when they are faced with a sizable balance. However, there are options if you can’t pay your balance all at once. In this post, we outlined how to deal with the situation. In it, we also discussed the IRS monthly payment plan referred to as an “Installment Agreement” or “IA” for short. In this post, we’ll discuss what you need to do in order to set up an IA.
The actual process of setting up an IA is pretty straightforward. The challenging part is making sure you are compliant and that you actually meet a number of basic requirements. We assist our clients in meeting these requirements, and then negotiate the actual payment amount after it’s determined that you are eligible.
So without further ado, here are the requirements one must meet to be eligible for a payment plan:
- File any missing tax returns or substitute for returns (SFRs).
- Begin making current estimated tax payments (for self-employed people) or Federal Tax Deposits (payroll tax payments for businesses), if applicable.
- Disclose specific financial information, such as income, expenses, and assets.
- Demonstrate that you cannot pay off the tax debt from savings, a loan, or other means.
- If you owe less than $10,000 in tax, be able to pay off the entire debt in 3 years or less. If you owe $50,000 or less, you get 5 years. If you owe more than $50k, there is no time limit.
- Not have defaulted on another IA in the past 5 years.
So as you can see, the requirements aren’t all that challenging. However, the most difficult part of this process for self-employed and small business taxpayers is #2 — finding the money to begin making payments on their CURRENT tax obligations. This involves some painful elimination of expenses and changing of priorities that most people don’t like, but it’s necessary. Remember, the IRS is the most powerful creditor that we have and they can really make a mess of your life if you don’t work with them. Thus, it’s best to get them taken care of, even if that means damaging vendor relationships, not paying other bills, etc.
If you’re eligible, then obtaining a payment plan is actually pretty straightforward. But as mentioned above, getting into current compliance is a critical first and second step, and is the most difficult part for most taxpayers.
Until next time…
Using a USP to Differentiate Your Business
Being in business is tough stuff. No matter how small or big you are, it never gets easier to achieve success. Combine that with the fact that you have hundreds if not thousands of competitors out there, and the job just seems to get harder. But it doesn’t have to be that way; not if you can differentiate yourself.
You see, there are numerous reasons businesses fail. Lack of capital, poor planning, poor management, etc. But an often overlooked cause is simply not being different enough. You see, most customers don’t know your business from another one, unless you tell them WHY they should purchase from you.
Rollo May, the distinguished psychiatrist, wrote a book called Man’s Search for Himself, and in it he writes: “The opposite of courage in our society is not cowardice … it is conformity.” Within that single sentence, you have a powerful cause of so many failures. Conformity — people acting like everyone else, without knowing why or where they are going.
So here you are with an idea, product or service that you think is better than what is currently on the market. Your quickest way to ensure success is to determine your Unique Selling Proposition (USP) and then tout it to the world. Here are some tips to help you come up with your USP:
Analyze the competition. What do they do well and where do they miss the boat? What don’t they offer that you do or could? Where are they geographically located in relation to you? The key is to look for holes in the market to identify where you may be able to carve out a niche. Remember, you never go head-to-head with a competitor…well, not at first at least.
Outperform on your core values. At Wilson Rogers, we place a great importance on servicing the customer relation aspect of our customers. What this means is that we go to great lengths to let customers know that they are NOT just another number on our P&L. They are a person/relationship whom we value and we want them to know that we care. This translates into customers who feel valued and they note this difference when comparing our company to our competitors. Figure out your core value and then perform on it better than anyone else dare even try.
Determine what sets you apart. Maybe you’re the only jewelry store with a designer on the premises. Or maybe you’re a hand car wash that keeps a detailer on staff. The key is to figure out what sets you apart that you can proclaim to your customers. Once you identify what that claim is, you have an easy USP to hang your hat on.
Use consumer pain points as inspiration. Sometimes, you just AREN’T different from your competitors. Thus, when all else fails, list the main frustrations customers in your industry face and devise a USP to satisfy them. For example, if you are a plumber, you may offer a one hour service window for customer appointments. This can be used to address the frustration of customers who call a plumber who says they will be there at 2PM, but then call at 4PM and state that they can’t make it because they’re behind on a job they had earlier.
Offer a guarantee. They key here is to focus on offering a cure for common customer frustrations. Going back to our plumber above, they might guarantee that if they don’t show up within the last 15 minutes of the scheduled hour window they will provide the first hour of work free. Or they could guarantee that they’ll leave the house cleaner than when they arrived, and show up in uniforms with belts. The goal: conquer plumbers’ reputation for lateness, messiness and embarrassing rear views.
Hey, I learned from the best of ’em!
Be specific. Baskin-Robbins was known for its 31 flavors, even incorporating “31” into its logo. You might be a heating company that’s on call 24/7/365, a manufacturer that offers 1,000 different SKUs, or a gym with 99 benches. The key is if you’ve got it, flaunt it and tell the world!
Always deliver. The plumbing contractor mentioned above might established a series of systems to make good on its guarantee. This could include equipping employees with handheld vacuums, booties and belted uniforms. But whatever your USP is, make sure that you can deliver on it every single time. If you can’t, it’s useless and you shouldn’t go through the effort of even creating it.
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