The Federal Tax Lien
What is the Federal Tax Lien
A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets.
A federal tax lien exists after the IRS:
1.Puts your balance due on the IRS computer system (assesses your liability);
2. Sends you a bill or notice that explains how much you owe (Notice and Demand for Payment); and
You:
- Neglect or refuse to fully pay the debt in time.
Your refusal to pay will allow IRS to file the federal tax lien.
The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property.
How to Get Rid or Release the Federal Tax Lien.
Paying your tax debt – in full – is the best way to get rid of a federal tax lien.
The IRS releases your lien within 30 days after you have paid your tax debt.You go into to a local IRS office with a cashiers check to accelerate the process.
Discharge of property from the Federal Tax Lien
A “discharge” removes the lien from specific property.
There are several Internal Revenue Code (IRC) provisions that determine eligibility. For more information, refer to Publication 783, Instructions on How to Apply for Certificate of Discharge From Federal Tax Lien (PDF) and the video Selling or Refinancing when there is an IRS Lien.
Subordination of the Federal Tax Lien
“Subordination” does not remove the lien, but allows other creditors to move ahead of the IRS, which may make it easier to get a loan or mortgage.
To determine eligibility, refer to Publication 784, Instructions on How to Apply for a Certificate of Subordination of Federal Tax Lien (PDF) and the video Selling or Refinancing when there is an IRS Lien.
Withdrawal of the Federal Tax Lien
A “withdrawal” removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for your property; however, you are still liable for the amount due. For eligibility, refer to Form 12277, Application for the Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien (Internal Revenue Code Section 6323(j)) (PDF) and the video Lien Notice Withdrawal.
Two additional Withdrawal options resulted from the Commissioner’s 2011 Fresh Start initiative.
One option may allow withdrawal of your Notice of Federal Tax Lien after the lien’s release.
General eligibility includes:
- Your tax liability has been satisfied and your lien has been released; and also:
- You are in compliance for the past three years in filing – all individual returns, business returns, and information returns;
- You are current on your estimated tax payments and federal tax deposits, as applicable.
- The other option may allow withdrawal of your Notice of Federal Tax Lien if you have entered in or converted your regular installment agreement to a Direct Debit installment agreement.
General eligibility includes:
- You are a qualifying taxpayer (i.e. individuals, businesses with income tax liability only, and out of business entities with any type of tax debt)
- You owe $25,000 or less (If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting withdrawal of the Notice of Federal Tax Lien)
- Your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier
- You are in full compliance with other filing and payment requirements
- You have made three consecutive direct debit payments
- You can’t have defaulted on your current, or any previous, Direct Debit Installment agreement.
How a Lien Affects You
- Assets — A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.
- Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.
- Business — The lien attaches to all business property and to all rights to business property, including accounts receivable.
- Bankruptcy — If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.
Lien vs. Levy
A lien is not a levy.
A lien secures the government’s interest in your property when you don’t pay your tax debt.
A levy actually takes the property to pay the tax debt. If you don’t pay or make arrangements to settle your tax debt, the IRS can levy, seize and sell any type of real or personal property that you own or have an interest in.
Help Resources
Centralized Lien Operation.
To resolve basic and routine lien issues: verify a lien, request lien payoff amount, or release a lien, call (800) 913-6050.
Collection Advisory Group.
For all complex lien issues, including discharge, subordination, subrogation or withdrawal; find contact information for your local advisory office in Publication 4235, Collection Advisory Group Addresses (PDF).
Office of Appeals.
Under certain circumstances you may be able to appeal the filing of a Notice of Federal Tax Lien. For more information, see Publication 1660, Collection Appeal Rights (PDF).
Taxpayer Advocate Service.
For assistance and guidance from an independent organization within IRS, call (877) 777-4778.
