I have the good fortune of having professional friends and colleagues around the country who have law practices or accounting practices which specialize in defending taxpayers whom the IRS claims owe back taxes.

And so, when some thorny issue comes up I might talk to a brother or sister tax pro in Florida or Texas or New Hampshire or Washington State or a smattering of other places around the country, in both red and blue states.

Recently, I was working on a tricky issue relating the Trust Fund Recovery Penalty (to the uninitiated, this weird string of four words refers to one aspect of tax law that properly strikes fear into the hearts of business owners with employees everywhere or, if it doesn’t, either it should or the business owner has already dealt with the issue and taken steps to avoid or solve this problem; see, for example, http://lifelawandtaxes.com/not-just-for-bernie-madoff-or-king-tut-business-owners-build-devastating-pyramids-of-withholding-tax-debt-deducted-from-paychecks-but-not-sent-to-irs/).

After brainstorming a bit on strategy for my Trust Fund Issue, my colleague and I started talking about life, the world, and business, generally.

She complained bitterly (and hilariously) about our still-new president Obama (I couldn’t disagree with her more on this, yet we still are able to find common ground elsewhere and get along just fine – like the Jets and the Sharks go bowling together).

Then, to my surprise, she told me that she is doing less and less tax work.

Honest Analysis Loses Out to Empty Promises

Her explanation: We can’t compete with these tax resolution companies who promise the sun, moon and stars in their advertising and then have telephone sales people who don’t know anything about the tax rules and say whatever the taxpayers want to hear.

She gave an example: I talked to a taxpayer, he makes $200,000 a year, owes $40,000 in tax, interest and penalty, has a federal tax lien filed against him. Owns a house, has a lot of equity in it, she said. Now, she continued, “you know and I know that this taxpayer’s income and assets are big enough that settling for ‘pennies on the dollar’ just cannot happen.”

She added, “I told this taxpayer what was possible, what was likely, and what was not possible. Then, he spoke to one of these telephone sales people who told him, ‘oh, no problem, we can settle this $40,000 debt for $1,000 and get the lien released in 30 days.’”

Sophisticated Analysis: “Not Gonna Happen”

Her sophisticated (and correct, I think) legal analysis of the salesperson’s promise: Not gonna happen. No way.

Despite the reality here, she said, the telephone sales people told a tale that sounded so good the taxpayer could not resist, and so, instead of hiring her, he signed up with the telephone sales person’s company.

She said, this keeps happening again and again.

Tax Problem Gets Worse

She added: And then what happens is these taxpayers who talk to me, but then go with these pie-in-the-sky moon-promising companies, come back to me a year later.

Now, they want to hire me! Now! A year later. The problem isn’t solved. They still owe tax. It wasn’t settled for pennies on a dollar, despite the sweet story of the telephone salesperson sold a year earlier.

Plus, the lien was not released. And in fact, now they owe a lot more because a year has gone by, with interest and penalties accruing.

And, icing on the cake, they don’t have any money left to pay my fee.

So, what am I supposed to do, now represent them for nothing to clean up the mess that an unscrupulous company made worse by first making bogus false promises and then failing to do anything?

Finally, she asked, where is OPR (That’s IRS’s Office of Professional Responsibility)?

Who knows.

Meanwhile, taxpayers are getting fleeced day after day by unscrupulous companies promising too-good-to-be-true solutions that are driving honest professionals who give honest analyses based on their best understanding of the facts and the real rules right out of the business.

A taxpayer searching around the internet asked this question. It is a very good question because it asks about the reach — and the limits — of the IRS’s power to reach into our lives whether we like it or not.

Liens 101: What is a Lien, Anyway?

For those unfamiliar with the term, a “lien” is essentially a claim — someone claims you owe them money.

In certain situations, the person (or business, or government agency) making the claim can file a document announcing this claim with the County Clerk or other public records authority.

By filing a lien with the County Clerk, the claimant announces to the world (and especially to credit reporting agencies) that the claimant says you owe it money.

It’s like taking a private debt (or claimed debt) and shouting from the rooftops to everyone around: “you owe me money!”

And Why Should I Care?

This can have the real and negative effect on your life by damaging or even ruining your credit score, making it harder, more expensive, or even impossible to get a loan, mortgage or other credit. It can also make you ineligible for certain jobs.

The IRS uses the federal tax lien as part of its set of tools to make sure it collects taxes it says are owed. The IRS files a lot of liens. For example, in the last month, in New York City, on the island of Manhattan alone, the IRS filed 580 liens. That’s almost 27 liens filed every business day.

Don’t You Have to Owe a Lot to Have an IRS Lien Filed?

How much do you have to owe for the IRS to file a lien?

It is amazing how little it can take: it took owing as little as $41.06 to get the IRS to publicly file a federal tax lien. This $41 dollar lien, by the way was filed today (the date of this writing), February 12th, 2009.

The largest lien filed in Manhattan in the last month was for over $8 million dollars.

So, with that background, getting back to the reader’s question, putting it into Q & A form:

Q: Can the IRS file a lien without going to court?

A: Yes. The IRS does not have to go to court to file a federal tax lien.

One of the things that makes owing money to the IRS (and most or all state taxing authorities) so dangerous to taxpayers, whether they are individuals or businesses, is that the IRS has powers to compel payment that reach far beyond the powers of ordinary creditors.

If you owe the IRS back taxes, first, think of the IRS, the government as your creditor, like a department store, or a credit card company, your car company, your landlord, your bank that gave you a mortgage on your house.

Then, second, notice the difference between the IRS and your banker, your landlord, your car company: the IRS does not have to sue you and get a money judgment against your to file a lien against you.

For the IRS, It’s as Easy as 1-2-3, A-B-C, Do-Re-Mi

Apologies to the Jackson 5.

But, seriously, all the IRS has to do to be able to file a lien is (1) determine that you owe money, (2) tell you that you owe it and ask you to pay it, and (3) wait ten days. If you have not paid in full by the time those 10 days are up, the IRS has the power and authority to file a piece of paper — a notice of federal tax lien — with the local public recording authority, be it the County Clerk or other.

While, generally, the IRS does not file a notice of federal tax lien on the eleventh day, it certainly does have the power to do so, or to do so at any time after those three standards are met.

The filing of a notice of federal tax lien makes what was the extremely private matter of your taxes very, very public. And the IRS is empowered to do all this by only meeting the three criteria described above. The IRS simply does not have to walk through even a single door of a single courthouse to do this (unless the County Clerk is in the court house). No law suit needs to be filed, litigated, or won.

Where other creditors have to prove their case and persuade a judge, a jury or both, all the IRS needs is, by contrast, the stroke of a pen.

In the IRS’s own words:

Once these requirements are met, a lien is created for the amount of your tax debt. By filing notice of this lien, your creditors are publicly notified that we have a claim against all your property, including property you acquire after the lien is filed. This notice is used by courts to establish priority in certain situations, such as bankruptcy proceedings or sales of real estate.

The lien attaches to all your property (such as your house or car) and to all your rights to property (such as your accounts receivable, if you are a business).

This power and ease to file a lien is enormously different from pretty much all other creditors. It is one of many reasons why you don’t want to owe money to the IRS, and why you probably would be better off owing money to almost anyone else. And, why if you do owe money to the IRS you want to take action to change that.

You can find out more about avoiding trouble with the IRS (or starting to get out of trouble, if tax trouble is already here) by getting my free special report, “7 Big Mistakes Taxpayers Make and How to Avoid Them to (Legally) Keep the IRS OUT of Your Wallet, OUT of Your Bank Account, and OUT of Your Paycheck,” by clicking here.