The IRS Tax Lien Process
The IRS will place a lien on your property only after sending a bill for taxes owing and demand for payment. The first notice of taxes owing will include a payment deadline of ten days. If you do not pay within that timeline or make arrangements to pay, the IRS may proceed with a lien against your property.
A lien takes effect when the IRS files a public document called a Notice of Federal Tax Lien. The notice lets creditors and potential creditors know that the IRS has a legal claim to your property. Federal tax liens can be applied to any personal property and business assets, including accounts receivable.
How will this affect you financially?
The Notice of Federal Tax Lien publicly notifies your creditors that the IRS has a claim against your property. This lien equally applies to any property acquired by you after the Notice of Federal Tax Lien is filed.
The filing of a Notice of Federal Tax Lien may appear on your credit report and may harm your credit rating. Even after an IRS tax lien is released and removed from your county records, Credit Reporting Agencies may retain the record of a lien. By some estimates, those records will be dropped from your credit report after 15 years.
An IRS lien will also limit your freedom to sell your home, car or any other assets. Should you sell property under lien, the IRS will have a claim to any money generated from the sale.
Releasing a Federal Tax Lien
When the IRS releases a lien, it no longer encumbers your property and your records are updated to reflect the release. However, the release of an IRS lien does not remove the federal tax lien from your credit report. The record of the lien will remain on county records for up to ten years.
The IRS will release a lien within 30 days when you have satisfied your tax debt in full, including interest and penalties.
The lien will also be released if the statute of limitations on IRS collections runs out before your tax debt is paid. The IRS is legally required to stop collections—and release any lien—ten years after the taxes are assessed.
If you cannot pay in full, and if your tax debt is relatively new, you do have other options. Under the Fresh Start Program, the IRS will release a lien when you enter into a Guaranteed Installment Agreement or a Streamlined Installment Agreement (with some conditions).
There are other options, as well, if you don’t qualify for a release of the federal tax lien.
IRS Lien Withdrawal
An IRS Lien Withdrawal removes the public Notice of Federal Tax Lien, as if the lien was never originally filed. A withdrawal does not, however, clear your tax liability. It simply wipes the lien from your record.
A Withdrawal can be requested when you have paid your federal tax balance in full, to clear your credit record. The same applies if the statute of limitations on your tax debt has passed and you no longer owe the IRS.
Likewise, if you can prove that the lien was filed in error, you are eligible for IRS Lien Withdrawal.
The IRS may also entertain Lien Withdrawal before your debt is cleared, if you demonstrate efforts to gain compliance and pay the debt. This includes filing all tax returns (business and individual) in a timely manner, over a three-year period, and complying with estimated tax payments or federal tax deposits.
In other cases, the IRS will sometimes consider a Lien Withdrawal if doing so will facilitate the repayment of the debt.
IRS Lien Discharge
A Lien Discharge permanently eliminates a Federal Tax Lien and allows you to sell your property free of the IRS claims.
A discharge can be secured for a particular piece of property—a car, for example. If approved, a discharge removes the lien from that piece of property, while leaving the lien in effect for other property.
There are several eligibility requirements, but to qualify, you must demonstrate that a discharge is in the best interests of the IRS. The IRS may approve a discharge if:
- The value of your remaining property under the federal tax lien is equal to at least twice the amount of tax liability and any other encumbrance on your property (e.g., mortgages, state or local taxes and private liens);
- A minimum acceptable amount is paid on the tax liability;
- The debts that preceded the federal tax lien are greater than the fair market value of the property or greater than the sale value of the property;
- A deposit or bond can be offered the IRS, equal to half of the government’s interest in the property under lien;
If you are considering an IRS Lien Discharge, the following factors will impact the outcome:
- Can you sell the property for more than the amount of the lien?
- What are the total liabilities and claims against the property?
- Are there creditors that have claims ahead of the IRS?
IRS Lien Subordination
A Lien Subordination does not eliminate a lien, but it does give you some flexibility with your property and can relieve financial pressure.
Lien Subordination allows other creditors to move ahead of the IRS in their claims against your property. This makes it possible to undertake financial transactions involving property under lien.
The IRS will consider Lien Subordination if it increases your ability to pay the taxes owing.
If, for example, refinancing your property will free up cash to pay your tax debt, the IRS may approve a Lien Subordination. In effect, the IRS would be giving the mortgage holder (e.g., your bank) first claim on the property if you were to default. To accept this risk, there must be a strong case that you will be in a better position to pay your debt.
The IRS may also approve a Lien Subordination if it is necessary to obtain the approval of other creditors to sell your property. In the case of the sale of a home, the mortgage holder would be paid first, and the IRS could lay claim to the remainder.
Get Expert Advice to Resolve Your Federal Tax Lien
If you have an IRS back tax debt and are worried about a lien, or if your property is already under lien, we can help. Get a free consultation with Precision Tax Relief to discuss the best options for avoiding or lifting a federal tax lien. If you already have a lien, we’ll assess whether you may be eligible for a release, withdrawal, discharge or subordination.
You can trust us to work for your best interests. In more than 700 reviews, we have a 98% client satisfaction rating—more than any other tax relief agency.
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