Though it’s never a welcome experience, complications with your taxes do happen. If you fall behind and find yourself unable to pay all of your taxes, the IRS will take steps to collect them. When this occurs, you will have options but they will vary based upon the circumstances.
The IRS places a lien on your property
There are a number of actions the IRS can take when someone neglects or fails to pay outstanding taxes, including wage garnishment, levies and liens. A tax lien is not an immediate collection action. Instead, it is an encumbrance on your property – the property can be personal property, real estate or financial assets. It acts much like a mortgage does on a home, with the IRS now having an interest in the property.
One of the problems a lien can create is that it limits your financial options. Let’s say the lien is on your home or a piece of business real estate. You may consider taking out a mortgage or loan, perhaps to help pay the owed taxes. With the tax lien acting as an encumbrance on the property, you may not be able to secure that loan because the lender will be unwilling to give it to you.
Subordination may help
In the above example, you can ask the IRS subordinate its lien. If it agrees, it’s interest in the property would become secondary to the future loan. This gives the potential lender more incentive to grant the loan you are seeking. Why would the IRS agree to subordination? Because their goal is for you to pay the taxes you owe – if they analyze the situation and think that assisting you to obtain the loan will result in your taxes being paid, it’s in their interest grant your subordination request.