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What is a tax lien? Form 668(Y) CPA accountant explains the Federal Tax Lien Process

CPA Wilmington NC discusses Form 668(Y), Federal Tax Lien

While it’s better to act early, there may still be time to avoid a federal tax lien. (910) 399-2705.

CPA accountants get calls after a potential client receives the infamous Notice of Federal Tax Lien, IRS Form 688(Y). I’ll share a few tips about how a tax lien CPA handles this entire process – from tax lien prevention all the way through to federal tax lien withdrawal. My best advice? Avoid a federal tax lien when possible.

So what is a tax lien?

  • Federal tax liens establish an IRS claim to your property as collateral against your tax debt. Of course, your state has their own version of tax liens.  Check out your state’s specific laws here with this handy IRS guide.
  • The IRS then has first “dibs” on some of your assets.
  • Form 668(Y) becomes a public record and the tax lien appears on your credit report, dropping your FICO credit up to 200 points.
  • Potential employers pass you by.
  • The federal tax lien stays on your credit report for years, even after you’ve completely paid it off.

Hi, I’m Gary Bode, a CPA with a virtual office to serve you, or your company, regardless of location. While we generally advocate self-sufficiency, once the IRS issues Form 668(Y), you probably need professional CPA help.

What is a tax levy?

The tax lien established by Form 668(Y) puts a hold on the form’s listed assets, up to the amount on the lien. A tax levy means the IRS or State seizes your assets and sells them to satisfy the back taxes due.

What is a tax lien release?

The IRS or State formally acknowledges you’ve paid off the tax lien.

What is a federal tax lien withdrawal?

The IRS tax lien stays on your record for years, even though you’ve paid it! You must ask them to withdraw the tax lien. Here’s one of our past posts on how to get the federal tax lien withdrawn early using Form 12277.

Back Taxes – Sometimes Taxpayers are due a Refund!

A tax lien, in my opinion as a CPA, is the last attempt of the IRS to gain your attention, generally about taxes due from un-filed returns. Incredibly, once we prepare the back tax returns, a taxpayer refund often exists. Why? On un-filed back tax returns the IRS calculates the taxes due from the revenue information they’ve collected. But they don’t factor in things like legitimate deductions and tax credits. Here’s an earlier post on back tax resolution.

IRS Tax Lien Release – How a Tax Lien CPA approaches Form 668(Y)

The IRS recently relaxed its tax lien policies. But Form 668(Y) explicitly says that the IRS has lost patience with you. Common steps we take include:

  • Avoiding the federal tax lien. Sometimes this involves preparing a few back tax returns.
  • Requesting a delay on the Levy process. Generally the IRS recognizes a CPA needs time to help you satisfy them.
  • Obtaining power of attorney for us to talk to the IRS about you – usually through both Form 2848 and Form 8821.
  • Carefully listening to your side of the dispute. We’re your advocate!
  • Gaining a complete understanding of the IRS’ position.
  • Checking the IRS figures. They’re not always correct.
  • Preparing un-filed back tax returns. This usually lowers  amount due the IRS.
  • Understanding your current financial condition. CPAs generally help manage cash flow during the federal tax lien process.
  • Filing Form 12277.  Here’s our past post on Form 12277, Application for Withdrawal of Filed Form 668(Y).
  • Obtaining a retainer. In these cases we get paid in advance. After all, there is no more powerful creditor than the IRS. Except maybe the local loan shark.

“My main concern is avoiding a tax levy and then getting the tax lien withdrawn from your credit report.” 
– Gary Bode, Form 668(Y) CPA and federal tax lien accountant

Common Techniques for Tax Lien Release:

  • Checking that the IRS followed their own rules. If not, the lien must be released.
  • Preparing back tax returns to cut your liability.
  • Preparing Form 656, Offer in Compromise. This is the infamous “pennies on the dollar” technique as seen on late night television. An Offer in Compromise, when appropriate, is a powerful tool. Here’s our past post on Form 656, Offer in Compromise and the related Form 433-B.
  • Entering into an Installment Agreement via IRS Form 9465. Here’s one of our past posts on Form 9465 and Installment Agreements. You may not even have to pay off the entire amount to have the tax lien released! Or, sometimes, not even provide an IRS collection statement.
  • Paying off Form 668(Y) in full. A good trick that requires careful financial planning.
  • Allowing the IRS to levy the assets.
  • Asserting that withdrawal of the lien will speed collecting the tax.
  • Asserting that withdrawal would be in your best interest (as determined by the Taxpayer Advocate), and in the best interest of the IRS.

IRS Information on Form 668(Y)

  • Publication 783, Instructions on How to Apply for a Certificate of Discharge of Property from a Federal Lien.
  • IRS Publication 784, Application for Subordination of Federal Tax Lien.
  • Publication 1450, Request for Release of Federal Tax Lien.
  • The IRS website provides a nice over view of Form 688(Y) and associated issues.

If you need a CPA advocate for your back tax or tax lein issue, please feel free to call us for a free, initial consultation at (910) 399-2705.

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4 comments to What is a tax lien? Form 668(Y) CPA accountant explains the Federal Tax Lien Process

  • George

    There is one thing that all these financial buzzards always leave off their websites in regards to Federal Tax Liens. If your tax debt has not been collected, and no Offer in Compromise has ever been agreed to or pursued, or if you have not entered into any Installment Agreement, and the 10 year rule has expired, the IRS can not collect that tax, and must release any Federal Tax Lien.
    For Rule 6502 (5.1.19.1) states that the IRS has 10 years to collect that debt, and if not collected, can no longer pursue a tax debt which has become unenforceable.

    Nowhere in these articles do they mention that Rule, or inform tax debtors who may have 6 months left to be free, that they have that option. These guys just want your money to represent you and hand you and your money over to a Corporation, not a government agency!

  • aiko okuyama

    Dear Mr. Bode,
    I have 3 back-tax liens which I am trying to get them discharged
    by asking to accept offer-in-compromise. My real problems is:
    my cpa filed my taxes very late: l995, 2001, 2003 were all filed in 2008 and I don’t see any payment voucher, so I don’t know if I paid
    any or not. So, the amt. of penalty & interest are huge, but I can’t
    even think right . I guess I must believe what IRS says, right?

    • Well Aiko I would use Form 4506T and request a record of account. Then I would use the prequalifier tool on the IRS site. Remember if you’re not eligible now you can do tax positioning to sometime qualify, given enough time. If your CPA isn’t interested I’m happy to help.

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