Top 5 Myths Lenders Have About the IRS Published September 25, 2015
Myth 1: If no federal tax lien has been filed, my collateral is safe.
Your collateral can be seized without notice. Many lenders don’t realize that the IRS doesn’t have to file a lien to issue a levy against your collateral. In fact, less than 40% of IRS liabilities currently have liens filed in the public record.
Using a public records search to assess your risk is understandable, but not nearly enough to protect you from your true IRS risk. The bottom line is, you are not protected unless you know for sure that your client doesn’t have outstanding federal tax liabilities.
Myth 2: Filing a Form 8821 and waiting for the mail has me covered.
Form 8821 may not effectively cover you, and you may never be notified of your client’s tax issue. Filing form 8821 and waiting for the IRS to send you a letter that may never come is a passive risk assessment measure.
The reality is that the IRS often makes mistakes when entering form 8821 information into their system. Even when they do input it correctly, they fail to copy lenders on important correspondence like a federal tax lien approximately a quarter of the time. Tax Guard obtains information directly from the IRS and proactively monitors your entire portfolio on a monthly basis.
Myth 3: Three years of tax compliance history is enough to assess IRS risk.
Three years is just scratching the surface. 50% of all IRS debt is older than five years, so requiring or reviewing only three years of tax information for funding approval leaves the door wide open for missing additional tax liabilities. Tax Guard gives you a verified, complete IRS compliance snapshot going back as far as 10 years.
Myth 4: Articles filed with the Secretary of State will confirm my client’s identity and give me the correct name for a public records search.
Information filed with the Secretary of State (SOS) may not match information in the IRS system. SOS Offices and the IRS often rely on taxpayers to voluntarily provide the information submitted on the original SOS filings, along with any subsequent changes. Prospects may provide incorrect information to the IRS or fail to notify the IRS of business name changes.
A public records search for a name listed with the SOS can still miss a federal tax lien if the IRS files it under a different name. Tax Guard reports are based on the EIN, so no matter what name your client or prospect has on file with the SOS, any IRS issues will be identified. This ensures that your due diligence is as accurate as possible and you don’t miss hidden tax risks from federal tax liens.
Myth 5: I don’t need to worry about an IRS Final Notice of Intent to Levy. I only need to worry about a federal tax lien.
Your collateral is at risk once the IRS issues a Final Notice of Intent to Levy. A Final Notice of Intent to Levy – IRS Letter 1058 or LT11 – is mailed 30 days before the IRS can begin seizing assets from a business or individual who owes taxes. Knowing when the Final Notice of Intent to Levy is issued is the most important factor in determining whether your collateral is at risk of enforced IRS levy or seizure. The IRS does not have to file a federal tax lien before they can levy and seize assets.