Federal tax liens filed by the IRS for unpaid back taxes can cause serious damage to many areas of your life. IRS tax liens can not only ruin your credit rating but also cause problems with employers. Companies often pass up on hiring an otherwise qualified candidate because of IRS tax liens on the candidate’s credit report. Employers in some industries, (banking, finance, legal, accounting, law enforcement, or government agencies requiring security clearances) often have to terminate employees due to IRS tax problems when they discover an IRS tax lien has been filed against their employee.

For well known public figures (politicians, celebrities, etc.), IRS federal tax liens can do great damage to your reputation once the local press gets a hold of the news that the IRS has filed a federal tax lien on you for unpaid back taxes. Often they will publish news of your IRS tax problems for the world to see causing not only embarrassment and humiliation but damage to personal and business relationships.

So what can you do to avoid the IRS filing a federal tax lien?

Once a federal tax is assessed, the IRS collection cycle begins. Besides the usual IRS collection letters threatening to levy and seize your assets, the IRS will eventually issue a federal tax lien and file it in the public record as notice to the public that you owe back taxes to the IRS. The trick to avoiding the filing of a federal tax lien is to be proactive before the federal tax lien is filed by the IRS.

In lieu of a federal tax lien, the IRS can in many cases accept a Collateral Agreement which protects the government’s interest so they do not have to file a federal tax lien. The three most common assets used as collateral are: (1) letters of credit from a lender, (2) securities, or (3) surety bonds. There are other assets that can be used but these three are the most common and can go a long way towards getting a Collateral Agreement accepted quickly to avoid the filing of a federal tax lien.

So, avoiding the filing of an IRS tax lien is possible. It just takes knowledge of the Collateral Agreement process and approaching the IRS early in the collection cycle before they issue a federal tax lien. An experienced tax CPA or tax attorney is best suited to help you with this process as they know how to properly draft a Collateral Agreement, negotiate with the IRS, and get the Collateral Agreement accepted.