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Established Contributor
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Registered: ‎01-09-2008
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Tax Lien - Please help me understand

My boyfreind owes back taxes for 2005-2007.  He is working with H&R block to get all the taxes sent in properly.  He will owe under 10,000 and he will set up a payment plan.  Will a tax lien be put on his credit report if hes making payments?  He is trying everything to prevent this from happening and I am helping him.  I am just trying to understand what exactly a tax lien is and we dont want it on his reports.

thanks for any advice.

 

 


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Re: Tax Lien - Please help me understand

[ Edited ]

If the IRS has not already filed a tax lien, there is a good chance they will accept language in the payment plan stating they will not do so as consideration for the taxpayer making payment in accordance with the plan.  I am assuming, which is always dangerous, that by "payment plan", you are alluding to an "Offer in Compromise", which in essence is the formal agreement with the IRS that states the amount of payments, how long, etc..  I also suggest a consultation with a tax attorney.  It's worth the few dollars to get this right.

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Re: Tax Lien - Please help me understand

Senior Contributor
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Re: Tax Lien - Please help me understand


CrdtLrnr wrote:

If the IRS has not already filed a tax lien, there is a good chance they will accept language in the payment plan stating they will not do so as consideration for the taxpayer making payment in accordance with the plan.  I am assuming, which is always dangerous, that by "payment plan", you are alluding to an "Offer in Compromise", which in essence is the formal agreement with the IRS that states the amount of payments, how long, etc..  I also suggest a consultation with a tax attorney.  It's worth the few dollars to get this right.


Payment plan and offer in compromise are two separate, distnct items.  One is basically payment in full over time and the other is a negotiated settlement for less than the amount due.

 

Yes, if in an approved payment plan and the lien has not already been entered, the IRS can withhold reporting of the lien.

IAALBNYL
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Re: Tax Lien - Please help me understand


O6 wrote:

CrdtLrnr wrote:

If the IRS has not already filed a tax lien, there is a good chance they will accept language in the payment plan stating they will not do so as consideration for the taxpayer making payment in accordance with the plan.  I am assuming, which is always dangerous, that by "payment plan", you are alluding to an "Offer in Compromise", which in essence is the formal agreement with the IRS that states the amount of payments, how long, etc..  I also suggest a consultation with a tax attorney.  It's worth the few dollars to get this right.


Payment plan and offer in compromise are two separate, distnct items.  One is basically payment in full over time and the other is a negotiated settlement for less than the amount due.

 

Yes, if in an approved payment plan and the lien has not already been entered, the IRS can withhold reporting of the lien.


 

06, normally that is the case, but I have counseled people where they are the same.  The OIC required payment in full over time.  It depends on the situation.

Senior Contributor
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Re: Tax Lien - Please help me understand

[ Edited ]

CrdtLrnr wrote:

O6 wrote:

CrdtLrnr wrote:

If the IRS has not already filed a tax lien, there is a good chance they will accept language in the payment plan stating they will not do so as consideration for the taxpayer making payment in accordance with the plan.  I am assuming, which is always dangerous, that by "payment plan", you are alluding to an "Offer in Compromise", which in essence is the formal agreement with the IRS that states the amount of payments, how long, etc..  I also suggest a consultation with a tax attorney.  It's worth the few dollars to get this right.


Payment plan and offer in compromise are two separate, distnct items.  One is basically payment in full over time and the other is a negotiated settlement for less than the amount due.

 

Yes, if in an approved payment plan and the lien has not already been entered, the IRS can withhold reporting of the lien.


 

06, normally that is the case, but I have counseled people where they are the same.  The OIC required payment in full over time.  It depends on the situation.


There seems to be some confusion with terminology.

 

According to the JAG manual and, direct from the horse's mouth, the IRS, "an offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed." 

 

There are three types of OICs:

 

1.  Lump Sum Cash Offer
2.  Short Term Periodic Payment Offer
3.  Deferred Periodic Payment Offer

 

Since an OIC always requires a $150 application fee, there is no logic to make an OIC to pay the full amount since you'd end up paying the full amount plus $150.  My clients would wonder why I am making them throw away an extra $150.

 

Logic follows there are only three possible reasons:

 

1.  One is using an OIC when an installment agreement is called for and, not playing with a full deck , and in spite of being in debt up to their eyeballs, somehow thinks throwing away $150 is wise;

 

2.  One shells out $150 for an OIC because they are well aware that they are saving more than that by settling their tax obligations for less, or

 

3.  One saves the $150 and is on an installment agreement.

 

An installment agreement, on the other hand, requires no application fee and allows "for the full payment of the tax debt in smaller, more manageable amounts."

 

 It is important to note that the IRS almost always assesses interest and, often, penalties which are added into the debt and increase the total balance.  In an installment plan, penalties and interest are generally paid and interest continues to accrue until the installment plan is completed.  In an OIC with periodic payments, interest is generally not assessed.

 

So, if your initial tax liability plus penalty and accrued interest was, for example, $10,000, you can make an OIC for $10k and, if accepted, avoid imposition of additional interest.  While to some this may appear to be a payment plan where the entire tax obligation is paid over time, it is not.  You are still paying less than the total amount due because the total amount due would necessarily include additional interest.     

IAALBNYL
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Posts: 69
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Re: Tax Lien - Please help me understand

[ Edited ]

Again, sometimes they are the same.  The IRS can agree to an OIC and also agree to stop acruing additional interest, allowing for a fixed installment type payment plan.  It depends on the IRS revenue official.  They have flexibility in setting up the OIC. 

Regular Contributor
Posts: 118
Registered: ‎11-15-2010
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Re: Tax Lien - Please help me understand

The IRS will automatically file liens for amounts over $5,000. However, yes, a payment plan can stop the filing of a lien. But, as a big federal agency, the left hand often doesn't know what the right hand is doing sometimes, so you must be proactive when you are entering into a payment arrangement, and be sure it is documented with the enforcement division. In my case, the lien amount was $5,111, for which I quickly made a payment plan, that should have avoided the lien. Four months later, they filed a lien. Now I am in the position of challenging off the lien (which I paid in 10 months). Incidentally, the lien was sent to an old address, even though I was corresponding with the IRS at the correct address for months and my pay agreement invoices had the correct address. So not only was the ien filed in error, I never had a chance to challenge it because notice went to an incorrect address. I only discovered the lien, and that it was released, when I pulled a credit report. So, yes, you can avoid the lien with a payment plan, BUT, it is on you to make sure the IRS follows through.

Regular Contributor
Posts: 238
Registered: ‎09-09-2009
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Re: Tax Lien - Please help me understand

i dont understand. why not make a down payment like 200 dollars that will put down below 5000 and irs wont do an lien.

Regular Contributor
Posts: 118
Registered: ‎11-15-2010
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Re: Tax Lien - Please help me understand

Actually, I had made three payments on my payment agreement by the time the lien was filed, and owed under $3800. All I can surmise is that the lien paperwork was filed with IRS enforcement division, there was a backlog and it sat for months before it was actually applied. When my number came up, no one checked to see if anything had changed over the time the lien paperwork sat idle. They just filed it. And I was never notified because they had an old address, so I has no chance to say, hey, wait, this is taken care of. This is my point: the IRS is a huge operation and they are not all communicating. Once you make a payment agreement make sure the enforcement people know about it, don't assume they do.

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