What is an IRS Federal Tax Lien?

The IRS federal tax lien is a claim registered against property for the non-payment of back tax liabilities. Unlike a bank or wage levy, the tax lien does not deprive the taxpayer of the property or the right to transfer this property. If you owe back taxes then you may ultimately become the victim of one of the most powerful tools in their collection arsenal: IRS tax liens. And know that the larger your back tax debt liability, the sooner the IRS may issue this federal tax lien against your property. The formal notification is called a Notice of Federal Tax Lien and this is a ?public notice? that you owe the IRS money. Now your IRS tax problem will no longer be a ?private or confidential matter?. Anyone considering doing business with you like banks, various financial institutions, customers and vendors will know that you owe the IRS back taxes. That is the reason so many delinquent taxpayers hope to stop IRS tax liens before this matter goes on the public record at the County Clerk?s office in their particular county. Once the IRS federal tax lien is registered, then the IRS has now become a secured creditor right behind other prior secured creditors, but ahead of all your unsecured creditors. And to make matters even worse, this IRS tax lien will go on your credit report. It will negatively impact your credit score, obviously making future financing for home, vehicle or other types of loans very difficult. Very often, this federal tax lien can make you completely ineligible to borrow, even at ridiculously high rates of interest, depending upon the guidelines imposed by the lender.

What are your options to secure an IRS lien release?

The Internal Revenue Service will release a Notice of Federal Tax Lien within 30 days after you satisfy the tax due (including any interest charges or other additions) by paying the tax debt or by having it adjusted, or within 30 days after the IRS accepts a bond that you submit, guaranteeing payment of the debt. It is prudent to seek out the advice of IRS tax specialists for IRS tax liens. The negative impact can be far reaching, as noted above in the first section. Keep in mind that an IRS lien release will typically occur ten years after the tax is assessed, provided the IRS does not file it again. However, contacting IRS tax specialists to review your tax lien problem is certainly advisable over ?waiting out the 10 year period? for the IRS federal tax lien to automatically or self-release. There are standardized procedures in place for IRS lien releases, discharges and subordination. In qualifying situations, the IRS will normally remove the tax lien within 30 days and the taxpayer may receive a copy of the Certificate of Release of Federal Tax Lien.

What can be done if you cannot afford to pay the tax debt in full?

Obviously, if you had the funds to remit on your back tax liability, you would not find yourself in this predicament where you are staring in the face of an IRS federal tax lien. As discussed above, the IRS will issue an IRS lien release if you satisfy the tax debt due by paying it or having it ?adjusted?. This essentially means that the IRS is open to a tax settlement, also called a ?compromise offer?, for an amount less than your full back tax liability. While this may sound quite easy, do not plan on this being a simple situation. If you are hoping to reduce your delinquent tax debt, there are several programs you may qualify for. IRS tax specialists have the in depth knowledge and experience to review your financial situation as it pertains to the Offer in Compromise program (both personal and business) as well as IRS Penalty and Interest Abatement. Both these programs offering IRS tax debt relief do reduce the overall tax liability. However, making or submitting an ?offer? to the IRS will not affect the IRS tax lien which remains effective until your offer is formally accepted and the amount is full paid to the IRS. At that point, a taxpayer may request the IRS lien release. Again, IRS tax specialists handle IRS tax liens a daily basis. They are abreast of all the complexities to insure your best chance at success for an accepted reduced offer and the ultimate release of your IRS federal tax lien.

The Limited Liability Company (LLC) is a terrific tax entity. The number one reason is its flexibility. Specifically, an LLC can be taxed as:

- a sole proprietorship

- a partnership

- a C corporation

- an S corporation

Do you know how your LLC is taxed?

If your LLC did not make an election, then it is taxed as the default classification. The default classifications are:

If your LLC has one member (owner), then it is disregarded for tax purposes. This means that all the LLC activity is reported by the owner and the LLC files no separate federal tax return.

*Important note: Some sates require disregarded LLCs to file a state tax return.

If your LLC has more than one member, then it is taxed as a partnership and files a partnership tax return.

*Special rule: If you and your spouse are the only owners and you live in a community property state, then you can choose which of the two classifications you want to use.

If your LLC made an election, then your LLC is taxed as a C corporation or an S corporation.

Do you need to make an election for your LLC to be taxed as a C corporation or an S corporation?

This election is typically recommended for operating businesses that are profitable. This election is typically not recommended for LLCs that hold investments, such as stock or real estate. LLCs that hold investments are typically best left in their default classification.

When should your LLC make the election to be taxed as a C corporation or an S corporation?

Once you have determined your LLC needs to make the election, you then need to consider the rules of when the election can be made:

*General rule: The election can take effect up to 75 days prior to the date the election is filed and up to 12 months after the election is filed.

Example: An LLC files its election to be taxed as a corporation on October 15th. The effective date for the tax election can be as early as August 2nd (75 days prior to October 15th) or as late as October 15th of the following year or any date in between.

*Special rule: For newly formed LLCs, in most cases, the LLC can file the election as late the original due date of the first corporate tax return and the election is effective as of the first day of the LLC.

Example: An LLC is formed on October 1, 2007. The LLC files its election to be taxed as a corporation by March 15, 2008 which is the due date of the first corporate tax return. The effective date of the election can be as early as October 1, 2007.

Understanding the fundamentals of entities, particularly LLCs, is a key part of building a wildly successful tax strategy.