Thursday, August 11, 2016

Everything You Need to Know About Federal Tax Liens



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:
  • Puts your balance due on their books and assesses your liability
  • Sends you a bill that explains how much you owe called a “Notice and Demand for Payment”
  • If you neglect or refuse to fully pay the debt in time
  • 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 does a lien affect you? First of all, a lien attaches to all of your assets, including real estate and securities, such as stocks and vehicles. This also includes future assets acquired during the life of the lien. A lien also limits your ability to get credit.

Paying your tax debt in full is the best way to remove your federal tax lien.


If you have a business, the federal tax lien attaches to all of your business property, including your accounts receivable. If you file for bankruptcy,  your tax debt, lien and notice of federal tax lien may continue after bankruptcy.

There are many ways you can get rid of your federal tax lien:

  • Pay your tax debt in full: This is the easiest way to get rid of a federal tax lien. The IRS will release your lien within 30 days after you have paid your tax debt.
  • Discharge of Property - Publication 783: This removes the lien from a specific property. If you sell a property which has an IRS lien, there are several circumstances to have the lien removed so you can sell. It must be in the IRS’s best interest to discharge a lien. If there is other property where the lien is covered by two-times the remaining lien after paydown or non-payment, the IRS will release the lien so you can sell, so long as there is no net value after paying off other senior liens, such as mortgages. The proposed escrow instructions and appraisal on a sale must be submitted to the IRS for approval, along with form 14135 Application for Certificate of Discharge of Property from Federal Tax Lien.
  • Subordination: This does not remove the lien, but allows other creditors to move ahead of the IRS so that you can refinance an existing mortgage. This is in the borrower’s best interest to improve cash flow and does not harm the IRS. IRS publication 785 gives instructions on how to apply for a subordination.
  • Withdrawal: This removes the public notice of federal tax lien and ensures that the IRS is not competing with other creditors for your property; however, you are still liable for the amount due.

Finally, you should know about two new withdrawal options that resulted from the 2011 Fresh Start initiative. If your tax liability has been paid and your lien has been released, you are in compliance for the past three years in filing your tax returns and you are current on your estimated tax payments and federal tax deposits.

Secondly, you may enter into or convert your installment agreement to a direct debit installment agreement. If you owe less than $25,000, your direct debit installment agreement must pay the amount you owe in fewer than 60 months or before the collection statute expires (10 years). You must be in compliance with all filing requirements and be current on other tax payments.  

If you have tax problems, reach out to me today. As a qualified tax resolutions specialist, I have experience in negotiating with the IRS to get you the lowest amount you have to pay. I would be happy to answer any questions you might have!



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