Understanding Tax Warrants: What Happens When They’re Issued
When dealing with tax issues, most people often fear the worst—hearing horror stories about the IRS, losing sleep over unresolved tax bills, and feeling like the situation is spiraling out of control. One particularly troubling scenario is when the government issues a tax warrant, commonly referred to as a tax lien. While it’s easy to imagine the worst, understanding exactly what happens when a tax warrant is issued and the steps you can take to address it is key to reducing stress and minimizing its impact. Here’s everything you need to know about tax warrants and how you can work to resolve the situation.
What Is a Tax Warrant?
A tax warrant is a legal document issued by the federal or state government, declaring that a person has failed to pay taxes owed. Often referred to as a lien, a tax warrant allows the government to seize personal property or assets in order to satisfy unpaid tax obligations. Once issued, the tax warrant becomes a public record, which can seriously affect an individual’s financial standing and future.
The government may place a tax lien on assets like real estate, bank accounts, and even personal belongings to ensure the outstanding tax debt is eventually collected. Even tax refunds in the following years can be garnished to pay off the outstanding debt until it is fully resolved. This process typically begins after repeated attempts to collect unpaid taxes through notices and communication have failed.
What Happens When a Tax Warrant Is Issued?
When the government issues a tax warrant, it generally follows a series of stages in the collection process. If you’ve ignored multiple tax bills and have failed to respond to notices, the IRS or state tax authority will issue a Notice and Demand Payment letter. This letter will inform you that you are required to pay your outstanding tax debt, either in a lump sum or through an installment plan. If you fail to make arrangements or take action, the next step is the issuance of a tax warrant.
Once a tax warrant is issued, the IRS or state agency is legally authorized to take aggressive measures to recover the amount owed. This includes garnishing your wages, seizing bank account funds, or even placing liens on your property. A tax warrant is not just a warning—it’s a declaration that the government has the legal power to begin taking your property.
What Should You Do After Receiving a Tax Warrant?
If you receive a tax warrant or Notice and Demand Payment from the IRS or another tax authority, it’s essential to take action right away. Ignoring it won’t make the situation go away and may result in further complications, including levies on your property or assets. Here’s what you should do to manage the situation effectively:
1. Verify the Debt
First, check the IRS’s assessment of the debt. If you don’t believe the amount owed is accurate, you have the right to contest it. Contact your local IRS office and request clarification on the matter. In some cases, discrepancies may exist between what you owe and what the IRS claims you owe, and correcting this can delay the collection process while you work to resolve the issue.
2. Consider Filing for Bankruptcy
If you’re already in the process of filing for bankruptcy, it’s crucial to notify the IRS. While bankruptcy won’t necessarily discharge your tax debt, it will temporarily halt the IRS’s collection actions due to the automatic stay imposed during bankruptcy proceedings. This may give you some breathing room as you work through your financial situation.
3. Work with a Tax Attorney
If you’re unable to pay the full amount owed, consider hiring a tax attorney who can guide you through your options. A tax attorney can help you negotiate a payment plan with the IRS, potentially reducing the financial burden and preventing further actions like levies or liens. They can also help you explore other tax relief options that might make your debt more manageable.
4. Explore an Offer in Compromise
An Offer in Compromise (OIC) is an agreement between you and the IRS where you settle your tax debt for less than the amount owed. However, these offers are not approved easily, and the IRS requires you to prove that paying the full amount would cause you financial hardship. If you can demonstrate your inability to pay due to your financial situation, an OIC may be an option worth exploring.
5. Request Your Account to Be Marked as Currently Not Collectible
If you’re unable to make any payments at the time of the tax warrant, you may be able to request that the IRS marks your account as currently not collectible (CNC). This doesn’t erase your tax debt, but it temporarily halts all collection actions. The IRS will revisit your account after a period of time to see if your financial situation has improved and if you can start making payments.
Can You Remove a Tax Warrant?
Unfortunately, once a tax warrant has been issued, it’s unlikely that you can remove it without taking action to resolve your tax debt. The only way to permanently eliminate a tax warrant is by paying off the amount owed or waiting for the statute of limitations to expire. Generally, the statute of limitations for state taxes is 20 years, while for federal taxes, it’s 10 years. However, waiting for the statute of limitations to pass is a rare and unlikely scenario, so it’s best to work on resolving your debt proactively.
Although you can’t simply remove the tax warrant, there are several ways to lessen its financial impact:
1. Discharge of Property
A discharge of property allows you to exclude certain assets from being affected by the tax warrant. While this doesn’t eliminate the tax debt, it may protect specific properties from being seized.
2. Subordination
Subordination allows you to take out a loan to help pay off the tax debt, even with the tax warrant in place. This option can help you manage the debt without losing your property or assets.
3. Withdrawal
A tax lien withdrawal removes the public notice of the lien, making it less likely to impact your ability to sell or refinance assets. However, this option is only available if you’ve made arrangements to repay the IRS under an installment agreement and owe less than $25,000.
How Does a Tax Warrant Affect Your Credit Score?
Since a tax warrant is a public record, it can negatively affect your credit score. A tax lien or warrant will be visible to potential creditors and can significantly lower your credit rating. This can make it more difficult for you to qualify for mortgages, credit cards, and other types of loans. Financial institutions may view your tax liability as a red flag, assuming you’re a higher risk borrower who may struggle to repay additional debts.
The presence of a tax lien on your credit report can also hinder your ability to refinance or sell your property. If the lien is attached to your home, it can prevent you from selling or refinancing until the tax debt is paid off.
What Happens if You Fail to Address Your Tax Warrant?
If you do not take action to address your tax warrant, the IRS will take more aggressive steps to recover the debt, including placing a levy on your assets. A levy can include garnishing wages, seizing funds from your bank accounts, and even taking real estate or personal property. The IRS may also issue a Final Notice of Intent to Levy and inform you of your right to a hearing.
At this stage, it’s highly recommended to hire a tax attorney. They can represent you at the hearing and help negotiate with the IRS on your behalf. If you meet certain criteria, it may be possible to have the levy released. For instance, if you’ve paid back the amount owed or can demonstrate that the levy is causing undue hardship, you might qualify for a levy release.
Reducing the Burden of Your Tax Warrant
While a tax warrant can feel overwhelming, it’s important to understand that there are ways to manage the financial burden. From negotiating a payment plan to exploring tax relief options, you don’t have to navigate the process alone. A tax attorney can guide you through the available options and help you find a resolution that minimizes the impact on your finances.
If you’re dealing with a tax warrant, reach out to experienced professionals like the team at the Law Offices of Mary E. King. We’ve successfully helped clients in Sarasota and Punta Gorda address their tax issues with the IRS, and we can help you too. Contact us today at 941-906-7585 to discuss your situation and explore the best solution for your financial future.
Conclusion
A tax warrant is a serious legal action, but it’s not the end of the road. With the right knowledge and assistance, you can work to resolve your tax issues and reduce the financial impact of a tax warrant. Whether you choose to negotiate a payment plan, explore an offer in compromise, or work with an attorney to find the best solution, it’s crucial to act quickly to prevent further damage to your finances.
