When dealing with tax-related problems, many people are understandably worried, fearing harsh consequences such as IRS actions, mounting debt, and a sense of losing control. One particularly alarming situation is the issuance of a tax warrant, often referred to as a tax lien. Although the idea of a tax warrant can be terrifying, understanding what it actually means and how to handle it can help ease your anxiety and minimize the damage. Here’s a breakdown of what happens when a tax warrant is issued and how to address it.
What Is a Tax Warrant?
A tax warrant is an official document issued by the federal or state government, indicating that an individual has failed to pay taxes owed. Often called a tax lien, it grants the government the authority to seize property or assets to cover the unpaid tax debt. Once a tax warrant is issued, it becomes part of the public record, which can negatively affect your financial standing and future opportunities.
The government may place a tax lien on assets like real estate, bank accounts, or personal property to ensure the unpaid tax debt is eventually collected. Future tax refunds could also be intercepted to pay the debt. Typically, this action follows numerous attempts to collect the taxes owed, including multiple notices and communication.
What Happens When a Tax Warrant Is Issued?
A tax warrant is part of a legal process triggered after repeated efforts to collect unpaid taxes have failed. If you’ve ignored multiple tax bills and have not responded to notices, the IRS or state tax authority will issue a “Notice and Demand Payment” letter. This letter informs you that the amount owed must be paid, either in full or through an installment plan. If you fail to make arrangements, the government will issue a tax warrant.
Once a tax warrant is issued, the IRS or state agency gains the legal authority to take more aggressive actions to recover the debt. This includes garnishing wages, seizing funds from bank accounts, or placing liens on property. The tax warrant marks the start of a legal process where the government can begin claiming your assets.
What Should You Do If You Receive a Tax Warrant?
If you receive a tax warrant or Notice and Demand Payment, it’s critical to take immediate action. Ignoring it won’t make the problem go away and could lead to even more severe consequences, including asset seizures. Here are the steps to take:
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Verify the Debt
Check the IRS’s records to confirm the accuracy of the debt. If you believe there is an error, you can contest the claim. Contact your local IRS office to clarify any discrepancies. If the amount owed is wrong, resolving this can delay the collection process while the issue is corrected. -
Consider Filing for Bankruptcy
If you are already in the process of filing for bankruptcy, be sure to inform the IRS. While bankruptcy won’t automatically clear your tax debt, it will stop IRS collection actions through the automatic stay granted during bankruptcy proceedings. This may give you time to address your financial situation. -
Consult a Tax Attorney
If you can’t afford to pay the full amount owed, it’s wise to consult a tax attorney. A tax lawyer can help you explore options like negotiating a payment plan with the IRS or other tax relief solutions that may reduce the financial strain. -
Explore an Offer in Compromise
An Offer in Compromise (OIC) is an agreement where the IRS agrees to settle your tax debt for less than the amount you owe. However, the IRS doesn’t approve these offers easily. You must prove that paying the full amount would result in financial hardship. If you meet these criteria, an OIC may be worth considering. -
Request “Currently Not Collectible” Status
If you can’t make payments right now, you can request that your account be marked as “Currently Not Collectible” (CNC). This won’t cancel your debt, but it temporarily halts IRS collection actions. After a period, the IRS will reassess your financial situation to see if you can start making payments.
Can You Remove a Tax Warrant?
Unfortunately, once a tax warrant is issued, it can’t be removed without taking action to address the underlying debt. The only way to eliminate a tax warrant is by paying the debt in full or waiting for the statute of limitations to run out. Typically, the statute of limitations for state taxes is 20 years, while for federal taxes, it’s 10 years. However, it’s rare that the statute of limitations will pass without addressing the debt, so it’s best to resolve the issue proactively.
While you can’t just remove the tax warrant, there are ways to lessen its financial impact:
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Discharge of Property
A discharge of property protects specific assets from being affected by the tax warrant, although it doesn’t eliminate the tax debt itself. -
Subordination
Subordination allows you to take out a loan to help pay off the tax debt even if a tax warrant is in place. This can help you manage the debt without losing assets. -
Withdrawal
A tax lien withdrawal removes the public notice of the lien, reducing its impact on your ability to sell or refinance assets. This option is available if you’ve set up an installment agreement with the IRS and owe less than $25,000.
How Does a Tax Warrant Affect Your Credit Score?
Since tax warrants are public records, they can severely damage your credit score. A tax lien will appear on your credit report, making you seem like a higher risk to potential creditors. This could make it difficult to qualify for loans, credit cards, or mortgages. If the lien is tied to your property, it could also prevent you from selling or refinancing it until the tax debt is cleared.
What Happens if You Ignore Your Tax Warrant?
Failing to address a tax warrant will only lead to more aggressive collection actions from the IRS. This can include wage garnishment, bank account seizures, and even the confiscation of property. The IRS may issue a Final Notice of Intent to Levy, notifying you of your right to a hearing.
At this stage, it’s highly recommended that you hire a tax attorney to represent you at the hearing and negotiate on your behalf. If certain conditions are met, it may be possible to have the levy released, such as if you’ve paid off the debt or if the levy is causing undue hardship.
Reducing the Impact of Your Tax Warrant
While a tax warrant may seem overwhelming, there are steps you can take to ease the financial burden. Whether you’re negotiating a payment plan, exploring tax relief options, or working with an attorney, you don’t have to navigate this process alone. A tax attorney can guide you through the available options and help you find a solution that minimizes the impact on your finances.
If you’re facing a tax warrant, don’t hesitate to 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 resolve their tax issues with the IRS, and we can assist you too. Contact us today at 941-906-7585 to discuss your situation and find the best path forward for your financial future.
Conclusion
A tax warrant is a serious legal action, but it doesn’t mean the end of the road. With the right knowledge and support, you can address your tax issues and minimize the financial consequences. Whether you choose to negotiate a payment plan, pursue an Offer in Compromise, or work with an attorney to find the best solution, it’s important to act quickly to prevent further damage to your finances.