Record High Number of Federal Tax Liens Filings Promise to Put a Continued Damper on the National Economy

May 3, 2010 | From the Firm

WALLINGFORD, CT, May 3, 2010 — One of the largest federal agencies is doing its best to undermine the eventual recovery of today‟s staggering economy. The culprit, according to tax resolution attorney Anthony Parent, is the IRS. “We have noticed an alarming increase in the number of Federal Tax Liens filed against delinquent taxpayers in recent years,” he says. “And when you realize that these liens are often against taxpayers who are in the most precarious financial situations, you have to question the wisdom of that approach.”

He cites recent figures that show that the number of Federal Tax Liens filed against those who owe back taxes to the IRS has increased by 250 percent in the last seven years. At the same time, he points out that the number of tax liens that have been removed by the IRS has remained stagnant. “This trend is likely to continue, which is terrible news for taxpayers in trouble, and even worse news for the economy generally,” he says. Attorney Parent is the founder of the tax resolution firm IRS Medic in Wallingford, CT.

It is that same troubled economy that has led to a significant increase in the number of delinquent taxpayers (many of whom have never had tax problems before). The IRS is filing more liens because of two factors: the impact of the economy on incomes and traditional borrowing sources and the recent changes in IRS policy. “Many taxpayers have had to dip into their retirement accounts to address cash flow problems,” points out Atty. Parent. “These early distributions from retirement savings accounts such as 401(k) s have dramatic tax implications. In addition, cash flow issues have led small business owners, the self-employed and independent contractors to fall behind on their estimated and payroll tax payments. With real estate values still plummeting, traditional banks afraid to lend, and hard money lenders scarce, problems that were once easily addressed by borrowing against the equity have meant tax liabilities that taxpayers cannot afford to pay.”

The second reason for the increase in the number of Federal Tax Lien filings is a recent change in IRS policy. Prior to 2009, IRS collection agents used the liens as a last resort. Now, however the IRS’s Automated Collections Services (ACS) automatically issues liens and local IRS Revenue Officers are under marching orders to issue liens in connection with their cases. This is true even in situations where the taxpayers have entered into agreements to pay the delinquent taxes. “We think of it as a „lien first and ask questions later,‟ policy,” Atty. Parent says. “And given that the IRS added 16,000 new IRS Revenue Officers this year you can expect a continued increase in enforcement efforts. That means they will continue to put a damper on the economy for years to come.”

The consequences of a tax lien go far beyond the payment of outstanding taxes, he points out. “Whether or not the lien is or is not justified, the damage done to the taxpayer can be irreparable,” he says. “They may be given the opportunity to challenge the lien but, as a practical matter, challenges are difficult and time-consuming. Moreover, even if the challenge is successful or the tax payer satisfies the tax obligation in full they will suffer irreparable harm because of the lien‟s impact on his or her credit rating.” When a lien is filed, all three credit reporting agencies immediately pick up on it and it will most likely lower the taxpayer‟s credit score by more than 100 points.

In addition, once the IRS files the lien, it will affect a taxpayer‟s employment prospects, especially for those seeking executive or other higher-end positions. “Nearly every job applicant in this tough economy is subject to a background check,” Atty. Parent points out. “Part of each background check is a credit report. Once prospective employers see the Notice of Federal Tax Lien on an applicant‟s credit report it‟s a mark against them. Clearly, applicants with good credit ratings have an advantage over those deemed poor credit risks in this highly competitive job market.”

Perhaps the most disturbing outcome of a tax lien is that its negative effects outlive the tax obligation that caused them. “Even when the tax lien is removed because the debt is paid, it remains on the taxpayer‟s credit report for a minimum of seven years, and potentially indefinitely,” Atty. Parent cautions.

He points out, though, that there are steps that a taxpayer can take to make sure a lien doesn’t destroy their world today and tomorrow. “Fortunately, there is a way to minimize, if not eliminate, the impact of a Notice of Federal Tax Lien on a taxpayer‟s credit report,” he says. “The secret is convincing the IRS to withdraw it instead of releasing it. Withdrawing a lien is far superior to a release. If you can get them to withdraw the lien, it‟s as if the lien never existed.”

“Any taxpayer who receives a Notice of a Federal Tax Lien is bound to be devastated by the news,” concedes Atty. Parent. “But you can‟t let that devastation immobilize you. Take action quickly and work with an experience professional so it does not affect the rest of your life. Once taxpayers can regain their own financial stability, a healthy national economy is sure to follow.”
About IRS Medic

about IRS Medic

IRS Medic is a practice of tax attorneys that works to resolve tax issues for businesses and individuals. These issues can range from unfiled taxes to audits, liens, penalties, other federal and state agency tax actions and business recovery. Attorney Anthony Parent founded the firm in 2003 to help clients deal with difficult tax problems. He combined an academic background in finance with a law degree to develop the foundations of the practice. For more information, see www.irsmedic.com.