As published in Scotsman Guide's Residential Edition, July 2011.
Since the passage of the Secure and Fair Enforcement for Mortgage Licensing Act, mortgage brokers and loan originators licensed under the Nationwide Mortgage Licensing System have been subject to credit checks aimed at evaluating their financial responsibility. Among other items, these reports will reveal Internal Revenue Service (IRS) tax liens.
Any IRS tax lien likely will disqualify brokers and loan originators from obtaining or renewing their license. Brokers and loan originators hoping to avoid such disastrous consequences should keep current with their tax payments and IRS protocols for filing tax liens. They also should know how to request tax-lien withdrawals.
A tax lien gives the IRS legal claim to property as security or payment for tax debt and can stay on a credit report for as many as seven years after the debt has been eliminated.
A Notice of Federal Tax Lien may be filed only after:
The IRS assesses a tax liability;
The IRS sends you a Notice and Demand for Payment (a bill that tells you how much you owe in taxes); and
You neglect or refuse to pay the debt within 10 days after receipt of the notice.
When the IRS files a tax lien against a taxpayer, it obtains a lien against all of that person’s property, property rights and future acquired property. The purpose of a Notice of Federal Tax Lien, when filed in the public records, is to protect the IRS’s interest in a taxpayer’s property against the claims of other creditors.
A Notice of Federal Tax Lien validates the government’s lien. After this notice is filed, the IRS must provide the taxpayer written notice within five business days. The IRS also must advise the taxpayer of the right to a hearing in front of the IRS appeals office.
Under certain circumstances, the IRS has the discretion to withdraw a Notice of Federal Tax Lien. This can occur when:
The filing was premature or otherwise not in accordance with administrative procedures;
The taxpayer enters into an agreement to satisfy the tax liability;
The withdrawal of the notice will facilitate the collection of the tax liability; or
The withdrawal of the notice would be in the best interests of the taxpayer.
Although the IRS may withdraw a Notice of Federal Tax Lien, it is not required to do so. The withdrawal of a lien will, however, expunge it from credit reports.
This past February, the IRS made some important changes to its lien-filing practices. These changes are spelled out in IRS document IR-2011-20 (sctsm.in/IR-2011-20).
The changes include:
Increasing the dollar threshold for lien issuance, which will result in fewer liens;
Facilitating lien withdrawals after tax bills are paid;
Withdrawing most liens for taxpayers who enter into payment agreements; and
Making payment agreements more accessible for small businesses.
Mortgage originators with current IRS tax liens may want to use this opportunity to request a withdrawal of the lien. You can do this using IRS Form 12277, which can be found online at sctsm.in/Form12277.
Note: This article was written for educational and informational purposes only and should not be construed as tax or legal advice. For information specific to your situation, please consult a tax attorney or adviser.
Alvin S. Brown, tax attorney, operates Alvin Brown & Associates,
a tax-law firm specializing in IRS controversies and representing clients in the U.S. and abroad. E-mail him at ab@irstax attorney.com or call (888) 712-7690. Find him on Twitter: @ustaxattorney.