If your business has not paid taxes in full to the federal, state or local government, it’s possible that a tax lien will be filed. What does a tax lien mean for your business? The lien is the legal claim any of these government entities have against your property — including financial accounts, equipment and real estate — that allows them to seize any or all of the property to pay your debt.
Before a tax lien is filed, you will receive a Notice and Demand for Payment of the unpaid taxes. This gives you 10 days to pay in full before the IRS, state or local government actually files the lien.
Does a Business Tax Lien Affect Your Personal Account?
As an owner, it depends on the kind of business you have. Incorporated businesses and limited liability companies (LLCs) can only have liens filed against business property. However, if you are a sole proprietor, the liens can extend to your personal property if your business property is not enough to satisfy the lien.
What Happens When the IRS Puts a Lien on Your Business?
When the lien is filed, you don’t start losing assets right away, but it is a public notice that a governmental tax authority is claiming your property and could start the process of taking it if your outstanding taxes aren’t paid.
In addition to the risk of your property being seized, a tax lien puts your business at a severe disadvantage compared to other companies. A tax lien makes it very difficult to get additional business loans, hurts your business’s credit rating, damages the company’s reputation and creates difficulty for selling any business assets.
How Are Tax Liens Terminated?
If you can, the first option is always to pay the unpaid taxes as soon as you receive the notice that the IRS or other government entity is going to file a tax lien. This will prevent a lien from ever being filed in the first place. If paying in full isn’t an option, you can contact the government agency to set up a payment plan. This can also prevent a lien from being filed.
Withdrawal
In specific circumstances, a withdrawal can remove an IRS tax lien from your business if your business:
- Owes less than $25,000
- Set up an installment payment plan that will take no more than 60 months for full repayment
- Have no history of defaulting on previous tax payment plans
- Make three consecutive, on-time payments
Discharge
Discharging property will remove the lien from a specific piece of property, allowing you to sell it without a lien attached. This method can help raise a chunk of money to pay the taxes your business owes, but the rest of your business’s property remains under lien. To qualify for discharge, you must have enough liened property remaining to satisfy the full amount you owe.
Partial Release
In Minnesota, if you sell property that won’t cover the entirety of what you owe, you can file for a partial release. This will remove the lien from the property, but will stay attached to you until the rest of the back taxes are paid.
Subordination
Subordination will not terminate the lien itself, but by allowing other creditors to move in front of the tax agencies, subordination makes it easier to secure business loans or restructure debt for extra cash flow that can be put towards your taxes.
Need Help Avoiding or Removing a Business Tax Lien?
Running a small business can be overwhelming at times, especially when taxes are due. The small business tax preparation professionals at Corneliuson & Associates are standing by to help. Whether you aren’t sure how to avoid a tax lien on your business or need a plan to remove one, our team of helpful experts are here to assist any way we can.