Tax & Business Insights

Tax Lien Buzzards

Volume 17 Issue 5 --  September/October 2005

In the old comic strip Freddy©, Freddy was standing in his yard looking at the roof and crying.  When asked “why the tears?,” Freddy replied that his parents said there was a mortgage on his house and Freddy was trying to find it.  In some cases, something much worse than a mortgage — a tax lien — can be on a person’s house and everything else they own.

Unlike most creditors who need to go to court, file a lawsuit, and then obtain a judgment in order to get a judgment lien, the Internal Revenue Service (IRS) and most states’ tax authorities can record a lien on taxpayer property by doing little more than sending some paper to a courthouse.

A federal tax lien arises by statute, upon making an assessment and reasonable attempts by the IRS to contact the taxpayer, usually in the form of a “First Notice of Intent to Levy.” In some cases, the taxpayer may not even receive the Notice of Intent to Levy because of a recent change of address.  The IRS is only required to send the notice to the last known address of the taxpayer. 

Liens and Levies

Many people confuse a lien and a levy.  A lien is an interest in property, like a mortgage or security interest. A levy, on the other hand, is an actual taking of property, such as a wage garnishment or seizure of a bank account.

Tax liens are publicly filed documents so anyone can obtain a copy of the lien and the address of the taxpayer.  The “tax buzzards” referred to in this article are the companies or individuals circling in the atmosphere, waiting to discover the existence of the tax lien.  Usually, such companies promise a variety of forms of relief to the taxpayer, usually for a fixed fee. 

The general view of those against whom tax liens have been filed are that they are usually deadbeats, social outcasts, etc., that cannot or do not care about their tax situation.  While this is sometimes true, there are also a variety of situations in which tax liens are filed against individuals who have, in some cases, no knowledge of the existence of the tax debt. 

Let’s look at the situation with I. Will Hyde and his wife, Nauga.  Let’s assume that Mr. Hyde did not report all of his income on the couple’s joint tax return. In fact, as commonly occurs, I. Will Hyde forged Nauga’s signature on the tax returns so she was not even aware of the tax liabilities. 

After the death of Mr. Hyde, Nauga was surprised to learn that there were tax liens filed against her and Mr. Hyde.  She was also quite surprised to receive letters from the tax buzzards who had monitored local lien filings.  Nauga was also lacking in the knowledge of the culture and language since she had immigrated from Naugaland, where all Naugahyde® is manufactured.

The Buzzards Circle

In the practice of representing individuals in tax collection matters, we have heard many complaints from various taxpayers about promises made by tax buzzards who take the money and run.  While there is little that can be done to prevent such activities, common sense is the most important tool in dealing with tax buzzards.  The problem is that the populace in general is not aware of the difficulty of dealing with government agencies like the IRS. In fact, even many tax professionals have no desire to become involved in tax collection activities.

One reason some tax professionals shy away from tax collection matters is the stark difference between the way government employees are paid, by salary, and the way most professionals charge, usually by the hour.  Why do professionals charge by the hour when dealing with the government?  The answer seems obvious to anyone who has spent an extended period of time dealing with the government.

The government will often ask for the same information two or three times in the course of handling a tax matter.  For this reason, it is very misleading for the tax buzzards to be able to promise relief for a fixed fee.  Fixed fees in tax collection matters usually mean complicated matters cannot be adequately handled.

It has been rumored that the IRS has raided some of the tax buzzard offices for representing inordinate amounts of relief, “pennies on the dollar,” and other such claims, but in a free society it is very difficult for the government to shut down everyone making exaggerated promises of relief.

Except for newsletters like this and the old saying of  “caveat emptor,” there is probably very little that can be done to thwart tax buzzards.  Perhaps the phrase “caveat emptor” should be modified to be “caveat hireor.”  Professionals reading this newsletter can pass some pearls of wisdom on to those in situations similar to Nauga Hyde’s. 

If you have a client who is in dire straights and needs assistance, please call The Tax & Business Professionals, Inc. to discuss what relief might be available.

Copyright 2005
By Tax and Business Professionals, Inc.
9837 Business Way
Manassas, VA 20110
(800) 553-6613

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