How to Keep the IRS from Sinking Your Credit

Welcome to the first day of the rest of your life! Building and maintaining a strong credit score can save you thousands of dollars over a lifetime in interest charges, late fees, and even insurance.

Did You Know?

If the IRS files a tax lien against your property, it is at least as damaging as a bankruptcy to your credit. The record of a tax lien being filed against you can stay with you for ten years or more unless you know how to ask to get it lifted.

How to Guard Your Credit

Maintaining your credit while dealing with a tax problem is essential to your financial future. There are some simple rules you can follow that will help protect your credit now and in the future.

Step 1—Act Now to File All Delinquent Tax Returns and Regain Compliance.

The IRS will not cease collections activities or negotiate with a taxpayer in any way until all delinquent tax returns are filed. One of the hardest things for us to see is a taxpayer who waits too long to call us, or who cannot afford to pay for the tax services he or she needs to regain compliance quickly. There is very little a taxpayer or an IRS representative can do to stop levies, reduce garnishments, and subordinate liens until all tax returns are complete and delivered to the IRS.

Clients who wait to address their tax problem are more likely to have their wages garnished, their accounts levied, and liens placed on their property by the IRS.

TaxMasters frequently extends payment plan options to clients who cannot afford to pay for tax services in full. However, we only extend short payment plans for this very reason. Even so, the clients who wait too long to engage TaxMasters and who fail to pay for compliance services in full may be subject to IRS collections actions.

We cannot stress enough that acting early in the process is the first and best way for you to avoid collections actions that will damage your credit directly or indirectly.

Step 2—Understand How IRS Collections Actions Affect Your Credit.

By far, an IRS tax lien is the most damaging of the collections actions to your credit. The IRS has stated they will file liens only on tax debts over $10,000. There is great news for people who owe less than $25,000 and do not have a bad payment history with the IRS. There is, as of March 2011, a simplified way to get a lien lifted.

If the debt is over $25,000 and a lien is filed, there is very little you can do to have a tax lien released until you regain compliance and negotiate a payment option with the IRS. A tax lien is at least as damaging to your credit as bankruptcy and can last longer if you do not know how to ask for the lien to be lifted after your tax debt is satisfied.

Bank levies are more common than lien filings and do not effect your credit score directly. However, if the IRS levies your account and you cannot pay bills or your creditors, non-sufficient fund charges and late payment penalties can add up in a hurry. As well, creditors report late and missed payments, which will have a negative effect on your credit score.

Wage garnishments can be devastating, as well. With more and more taxpayers living paycheck to paycheck, the ability to pay bills, buy food, and support a family can be seriously impacted by wage garnishments. The IRS cannot impose what they define as a hardship on you through wage garnishment. As a result, TaxMasters can often get wage levies reduced or even removed after a client has regained compliance with the IRS. If a wage garnishment causes you to miss payments or send payments in late, it can have a negative effect on your credit score.

Step 3—Take the Correct Steps After Regaining Compliance.

After filing all your delinquent tax returns and regaining compliance with the IRS, you will have a firm idea of exactly how much you owe in tax debt. After filing all tax returns, our clients typically owe less than the IRS said they did. This is because the IRS uses all your income, none of your itemized deductions, and allows only for standard deductions if they file a Substitute For Return (SFR) because you failed to file. When you file an updated return, you are able to take all the deductions you have coming. There is a limit of time for how long the IRS will allow you to go back and amend SFR filings.

This is the stage at which a firm like TaxMasters will intervene and request that the IRS suspend or reduce levies and garnishments with the understanding that the taxpayer is now in compliance and determining how to repay his or her tax debt. And after a payment plan is established with the IRS, you can even request a lien be lifted from your property in most cases.

The TaxMasters Advantage

If you hired TaxMasters to complete your tax services, you will receive a 433 Financial Analysis Report after your tax services are complete. This report includes suggestions on which IRS repayment option you should qualify for given your specific financial information and tax debt. You can take this report to any tax representation firm, or even attempt to negotiate the repayment plan with the IRS yourself.

If you hire TaxMasters to complete a “Phase 2” negotiated settlement, we will not collect payment for these negotiation services until you and the IRS agree on a repayment option. In other words, if we cannot attain the settlement option we think you qualify for, you don’t pay us.

What do you have to lose? Time is moving. The longer you take to begin the work that goes into resolving your tax problem, the greater the chances of you being subject to tax liens, wage garnishments, and account levies.

The way to save your credit when dealing with a tax problem is to take the necessary steps to resolve your tax problem before the IRS comes after your money.

It’s up to you. This is the first day of the rest of your life. Contact us or call us now at 1-800-581-0456 to get started fixing your tax problem. The sooner, the better.