What is a Notice of Federal Tax Lien?
The Internal Revenue Service will file a “Notice of Federal Tax Lien” after it has unsuccessfully attempted to collect taxes owed by an individual or business. This federal tax lien attaches instantly to all of the taxpayer’s property, whether real or personal, regardless of any other creditors that may hold liens. The IRS prefers to get paid before everyone else. The Notice of Federal Tax Lien is a public record, so anyone can look up the fact that you haven’t paid your taxes. Fortunately, there are a few ways to get rid of these liens.
The Obvious Fix
The first and best way to get rid of a tax lien is the most obvious option – pay your tax debt. The IRS will release your lien within 30 days after you have paid your tax debt in full. However, the overwhelming majority of those with federal tax liens don’t happen to have that kind of money readily accessible. This leads to the alternative options.
Discharge of Property
A “discharge” removes the federal tax lien from specific property. If you are trying to sell your home, but there is a tax lien filed against you, you can still complete the sale. Once you meet certain requirements, the IRS will discharge your home from your tax lien and allow you to sell the property free and clear. While this can allow you to sell your home, you will still be liable for the full amount of your tax debt. You may be able to pay it in full with proceeds from the sale of your home. The key is to act quickly given the short timeframe for real estate closings. It is important to work with an experienced tax attorney who knows the process of getting property discharged.
“Subordination” does not remove your federal tax lien, but it allows other creditors to “move ahead” of the IRS, which may make it easier to get a loan or mortgage. This may be a great option for you if you are considering refinancing your home while you have a federal tax lien filed against you. You should consult with a tax attorney if you are considering subordination to first determine whether it is even financially a reasonable option for you.
The IRS will remove the public Notice of Federal Tax Lien via a “withdrawal” if (1) you have paid your entire tax debt, or (2) you have entered into a Direct Debit Installment Agreement with the IRS. For the second option, you must: (i) owe $25,000 or less, (ii) agree to pay your debt within 60 months through an installment agreement, (iii) be in full compliance with all other filing and payments, (iv) not have defaulted on your current or any previous installment agreement, and (v) have made three consecutive direct debit payments. If you meet all of those requirements, your tax attorney can file to have your lien withdrawn.
If you have received a Notice of Federal Tax Lien, it is important to contact a tax attorney immediately. If you do not address the federal tax lien, the IRS will levy (seize) all of your real and personal property and sell it to satisfy your tax debt. These dire consequences can be easily avoided simply by contacting your tax attorney to discuss your options.