Guide to Michigan Tax Liens & How to Release
What to Do if the Michigan Department of Treasury Issues a Tax Lien Against Your Assets
The Michigan Department of Treasury has the right to issue tax liens or take other collection actions against you if you have unpaid state taxes. To protect yourself, you should try to make arrangements on your Michigan tax debt before the state issues a lien.
Contact a Michigan tax pro if there is already a lien against you. They can answer your questions and help you apply for a lien release.
What Is a Michigan Tax Lien?
A Michigan state tax lien is the state's legal claim to your property. Once issued, state tax liens attach to your real or personal property. They give the Michigan Department of the Treasury the right to the property or interest in the property until the debt is paid.
To explain, imagine that you owe $20,000 in state back taxes. The state issues a lien, and it attaches to all of your real and personal property. If you sell any of your property (homes, cars, boats, etc), the Michigan Department of Treasury has a legal right to the proceeds of the sale.
When Does the MI Department of Treasury Issue Tax Liens?
The Michigan Department of Treasury issues tax liens relatively quickly when a taxpayer has unpaid state taxes. Aside from notices, a tax lien is usually the first collection action used by the state.
Generally, the state sends taxpayers three notices over a 90-day period. If the taxpayer ignores all of the notices, the Department of Treasury files the lien 35 days after the last notice.
What Is a Michigan Notice of Tax Lien?
A Michigan Notice of Tax Lien alerts you if the state has filed or plans to file a tax lien against you. However, this is not the first notice you will receive. The state sends several notices informing you of your state tax bill and urging you to pay your balance before it takes this action.
How Does Michigan Notify Taxpayers About State Tax Liens?
In most cases, the first notice is a Letter of Inquiry. This notice states the amount you owe. It may include tax from a Michigan state tax return that you filed and didn't pay, or it may include taxes assessed against you by the state.
If you don't respond to the Letter of Inquiry, the state will send you a Bill for Taxes Due (Intent to Assess). This comes approximately 30 days after the first notice. If you don't agree with the tax shown on the bill, you should appeal or request a conference. Don't wait to appeal. Appeals are time sensitive, and you may lose your opportunity if you don't act quickly.
You effectively agree with the tax bill by not responding to the Intent to Assess. Then, 60 days later, the Treasury will issue a Final Bill for Taxes Due (Final Assessment). This is typically the last notice you get before the state moves forward with the tax lien.
Do not ignore the Final Assessment. It is a very time-sensitive notice. If you don't respond, the Treasury will issue a Michigan state tax lien against you.
Requirements for Issuing Michigan Tax Lien
The Michigan Department of Treasury will only file a state tax lien after the following events have occurred:
- A tax liability has been assessed.
- The Treasury sends you an Intent to Assess and/or a Final Assessment detailing how much you owe.
- You don't respond or pay the debt within 35 days of the date noted on the Final Assessment notice.
If these elements are not in place, the state does not have the right to issue a tax lien. However, if there is a jeopardy assessment, the state may not have to follow this timeline. A jeopardy assessment is when the state believes that it may not be able to collect the tax unless it acts quickly.
For instance, if the state has a reasonable assumption that the taxpayer is going to flee the country without paying their Michigan state tax debt, the state may have the right to file the lien much quicker than usual.
Where Are Michigan State Tax Liens Filed?
The Michigan Department of Treasury files tax liens in the county where you live. The Treasury can file the lien with the Ingham County Register of Deeds if you live outside of Michigan.
Impact of Michigan State Tax Liens
When the Department of Treasury files a tax lien against you, it adds a filing fee to your total balance. This increases the amount that you owe. Interest and penalties will also continue to accrue on your account until you pay off the balance.
Additionally, tax liens are public records. If you apply for a loan, the lender will see the lien, and they may not be willing to offer you credit. Liens can hurt your credit score, and they may stay on your credit report for years.
The most significant impact of a state tax lien, however, is that it attaches to your assets. If you sell the asset or take out a loan against it, the state has a right to those funds. This can effectively freeze your personal or business finances. Liens can make it very difficult to carry on your financial life as usual.
Difference Between Michigan Tax Lien and Levy
Liens attach to your assets, while Michigan levies give the state the right to seize your assets. In Michigan, you will also hear the word "warrant" in relation to tax collection.
A tax warrant is a legal order to seize your real or personal property. For example, if the state issues a lien against your assets, the state does not get any money until you sell the asset. However, if the state decides to levy that property, it will seize the property, sell it, and then apply the proceeds to your balance. A lien can be a precursor to a warrant.
In Michigan, the state normally uses the word warrant when it plans to seize physical assets or to close your business for non-payment of tax. It uses the term levy when it garnishes your wages or seizes the funds in your bank account.
How to Get a Tax Lien Release in Michigan
The section of the state legal code that outlines the rules on lien releases is Section 205.29a(1). Here are the situations where the state of Michigan will release a tax lien:
If you pay the tax liability in full.
The most effective way to get a lien released is to pay the tax liability in full. Once you pay, the Michigan Department of Treasury has 20 business days to release the lien.
If the state made a mistake while filing the lien.
The state will also release the lien if it made a mistake filing it. This can include procedural mistakes, such as when the department doesn't send out the correct notices. It can also include situations where the lien attaches to assets that the taxpayer does not own.
If the state realizes that it has filed a lien against assets that the taxpayer does not own, the state must release the lien within five business days. The department will issue a certificate of nonattachment that clearly says the taxpayer doesn't have a right to that property and thus that the lien does not apply.
Here's a quick example of when this might happen. Imagine that you are the custodian of your disabled adult child's checking account. Because your name is on the account, the state might issue a tax lien against it. However, when you reach out and prove that the funds in the account are not yours, the state will release the lien.
If the lien attaches to property exempt from levy.
Michigan uses the same rules as the IRS when determining which assets are exempt from levy. According to Section 6334 of the Internal Revenue Code (IRC), the following assets are exempt from levy: school books, fuel, furniture, personal effects, tools of the trade, certain annuities, pension payments, worker's compensation, child support, and funds from public assistance.
The government must also leave you enough of your wages to cover basic living expenses, and your personal residence is exempt from levy if you owe less than $5,000. If the state issues levies against any of these assets, it must release the levy within five business days of realizing the mistake.
If subordinating the lien helps you pay your tax liability.
Michigan does not advertise any other situations where the state releases tax liens. However, the department may be willing to release or subordinate liens if doing so will help you pay your tax bill.
To give you an example, imagine there is a tax lien attached to your assets, so you can't get a loan. However, if you get a loan against your house, you will be able to pay the tax liability. In this situation, the state may be willing to subordinate its lien to the lender who is extending you a loan against your house.
If a mistaken lien made you incur fees from your bank or from the Department of Treasury, the state would reimburse you for the fees.
Offer in Compromise to release the tax lien.
If you file an offer in compromise, the lien will remain in place until the Michigan Department of Treasury reviews your offer in compromise. If the DOT rejects your offer in compromise, the lien will remain in place until the liability is paid off. If your offer is accepted, the DOT will release the lien once the compromised amount is paid in full.
Installment Agreements and Michigan State Tax Liens
If you enter into an installment agreement, the state will not release your state tax liens. Generally, state tax liens stay in place while you make payments on your state tax liability. The state won't garnish your wages or seize your bank account if you are making payments. However, the state can seize your state and federal tax refunds. It can also seize vendor payments from the state of Michigan until your tax liability is paid in full.
Get Help Releasing a Tax Liens Michigan
Do you have a Michigan tax lien against your assets? You need to contact a Michigan tax pro today. They can help you apply for a lien release or find other resolution options.
Using TaxCure, you can search for tax pros based in Michigan and filter your results by the tax pro's experience with your concern. Don't let unpaid taxes stress you out. Use TaxCure to find a Michigan tax pro today.