Business tax liens can hurt your finances, your credit and can possibly even put your business in jeopardy. “A tax lien can be devastating to you and you should do everything you can to avoid it,” says Barbara Weltman, attorney and author of J.K. Lasser’s Small Business Taxes.
What Is a Business Tax Lien?
Here’s how a business tax lien can happen. The IRS says you (or your business) owes taxes. It sends you a notice, called a Notice and Demand for Payment. You don’t pay.
The IRS then files a public record document called a “Notice of Federal Tax Lien.” It alerts creditors that the IRS has a legal interest in your property for an unpaid tax or a delinquent tax bill. And, by extension, it often indicates you or your business has financial problems since you can’t pay your taxes.
How Do Tax Liens Affect Your Credit?
Remember the public record document we just mentioned? There are companies that scour public record information at courthouses around the country and then supply that information to credit reporting agencies, and in turn, the credit bureaus may report them on your business credit report. Business tax liens typically appear on commercial credit reports (D&B, Experian, for example). Personal tax liens traditionally appear on personal credit reports (Experian, Equifax, TransUnion, for example); however, due to new credit reporting standards they are disappearing from these reports.
An IRS tax lien is considered very negative and will almost always cause your business credit scores to drop, and may result in a rejection when you apply for credit.
A tax lien can be devastating to you and you should do everything you can to avoid it.
Tax liens are filed in the same database as UCC filings. Although UCC filings are considered consensual because they are typically associated with a small business loan, a line of credit, or a new credit card. Tax liens are considered non-consensual or statutory liens because they don’t involve a contract with a creditor like a UCC lien. Statutory liens are not limited to federal tax liens either. A state tax lien or a judgement lien, occur by operation of law. Statutory liens arise without your permission or consent.
Tax Liens Can Be Filed Against Personal or Business Assets
As we already mentioned, tax liens can be filed against both personal and business assets. If you’re business is run as a sole proprietorship, as far as the IRS is concerned, you and your business are connected — so you should probably expect a tax lien on your business assets will include a lien on your personal assets as well.
Additionally, a business tax lien typically shouldn’t affect your personal credit reports or scores unless you’re a sole proprietor, in which case you and your business are one. (Even then, tax liens are being removed from personal credit reports.) There are times, however, that the IRS can hold the business taxpayer liable personally for debts of the business. If the IRS attempts to do this to you, you’ll want to get advice from a tax attorney.
How to Have a Tax Lien Removed
Your first goal is to pay off your tax liability. If you do, you can get the tax lien released. The IRS releases a tax lien thirty days after the tax bill is paid in full. But “released” doesn’t mean “removed;” it’s still a matter of public record. You can apply to have it withdrawn — which removes it from the public record — if you are in compliance on all your tax returns (personal and business) in the past three years and you are current on your estimated tax payments and federal tax deposits, as required.
You may also be able to get the lien withdrawn before it is paid in full. How? You’ll need to enter into a direct debit installment agreement to pay your tax debt in five years or less, meaning you agree to have the payments automatically deducted from your bank account. The owed tax obligation can’t be more than $25,000. After three direct debit payments on this program, you may apply to have the lien withdrawn. (For specific details, see IRS Form 12277).
Once it’s been withdrawn you can notify the credit reporting agencies with a copy of the document you received from the IRS confirming the withdrawal. Generally they will stop reporting it, though there is no federal law that limits how long they can appear on business credit reports.
How Can You Prevent a Business Tax Lien?
Stay on top of your bookkeeping and current on your tax filings. If you find you owe more than you can afford to pay, you may want to consider an installment agreement with the IRS or get a small business loan (or even a personal loan) to pay off the debt.
Here are what we what we consider some of your best business loan options.
What If You Can’t Pay?
If you can’t pay your business taxes, you may be able to negotiate a discount or “offer in compromise” to resolve the debt for less than you owe. Bankruptcy may be an option for some older tax debts. And in particularly difficult situations, you may be able to get your account placed into “uncollectible” status, where you won’t continually hear from the IRS (though fines and penalties will continue to accrue). If you have tax debt you can’t pay, it’s a good idea to talk with a reputable tax professional to go over your options.
This article was originally written on May 5, 2016 and updated on November 15, 2023.
I had a State real estate tax lien put on my business/church. What is the process to remove it from Experian Business Credit?
Is it valid Robin? If it’s valid it may be reported for six years and nine months. If it is not valid, you must order a copy of your business credit report from Experian in order to dispute the information that is wrong.
My credit report states I have a business lien in a state lve never owned a home or business in and in fact lve never been a business owner ever! What should I do?
Are you talking about your personal credit report? It should not list business credit reports of any type. Can you clarify where you saw this?
Geri, I have a state tax lien on my D&B report (haven’t pulled Experian or Equifax). I plan on disputing it following the process of removing a tax lien or other judgement from a personal credit report. My question is, the first step in removing a public record from a consumer credit report is to freeze LexisNexis, CredCo, SageStream etc., basically freeze the reporting agencies that are providing the information to the consumer CRAs. Who are these third-party reporting agencies to the business CRAs? Since D&B, Equifax and Experian (business) are not scouring public records, clearly there are/is companies/company that is providing this information. Do the same third-party reporting agencies for the consumer CRAs also provide business info to the business CRA’s? Thanks!
It’s clear you’re thinking creatively about this! However, I am not familiar with the technique of freezing your report with companies that may be supplying information about the tax lien to the bureaus and I am skeptical that it will work. For one thing, the information on those suppliers isn’t always available (which bureau gets public record information from which source). Secondly, the companies that gather this information may not be consumer reporting agencies for purposes of federal law so they may not have to honor a freeze. Finally, you can’t freeze business credit. The method I generally recommend is resolving the tax lien with the taxing authority and then requesting the withdrawal of the lien. There is a process for this at the federal level but you’ll have to check at the state level. (And to answer your question more directly, unfortunately I don’t have an answer to your question about the names of companies that supply this information to business credit bureaus.)
Thank you. Apparently freezing the third party reporting agencies on the consumer side works due to a clause in the FCRA, however, since that does not apply to business credit, I was skeptical if it would work. Unfortunately, CAFTB does not “withdraw” the lien, they show it as “paid” or something to that effect and it can still be shown. I will try to dispute directly with the business CRAs. Thank you again!
How delete my 2 taxes lien – step by step?
I don’t have idea about it until today… one is released and the other is open…
Help please!
Are they state or federal tax liens? Business or personal? Is the open one still unpaid?
Business.
1) RELEASE
2) PENDING something like that
The one question I didn’t see you address is whether these are federal tax liens (due to federal business tax debt) or on the state level. If they are on the federal level you may be able to get them released and removed under the IRS Fresh Start Program discussed above. (You can go to the IRS website and search for Form 12277 to get the instructions.) Your state may or may not offer something similar – unfortunately I am not aware of a state by state directory that addresses those policies.
Are you aware of these tax liens? Do you know if they are legitimate and whether they are state or federal? Sorry – it’s a little hard to advise without more information.
How can you remove default student loan [with no money]?
Depending on the type of student loan you may be able to rehabilitate it. Successful rehabilitation will take it out of default but depending on your servicer may or may not remove the late payments leading up to default. You may be able to do that with with reasonable and affordable payments which Student loan servicers don’t always make it easy to understand your rights or the process here. I’d suggest starting with some basic searches online to understand your options but if you still get stuck there are non profit credit counseling agencies that may be able to help. You can find one at StudentLoanHelp.org. Good luck!
Do you know any free lawyer who will dismiss student loans providing the case was worthy?
Are you talking about attorneys who will help you get your student loans discharged in bankruptcy? If so, I imagine it will be difficult to find an attorney who can provide this service for free. There are some debtors who have successfully accomplished this on their own, however. Steve Rhode has written about this issue extensively on his blog. You can find archives of his articles here.
thank you Gerri. very interesting maybe some hope will emerge from this. thanks!