How To Resolve A Tax Lien

If you are facing a Federal tax lien, ignoring the IRS’ correspondence won’t make it go away. Thus our first word of advice is to try and avoid having a tax lien filed against you if possible.  This can be done by responding to the correspondence, setting up a payment plan or a host of other options.  But if one has already been filed against you, this post will tell you how to deal with it.

How to Get Rid of a Federal Tax Lien
The easiest way to get a Federal tax lien lifted is to pay the tax owed, however, this is not always possible. If that is the case, you may qualify for one of the following three options:

A “withdrawal” removes the public Notice of Federal Tax Lien (NFTL) from your credit report and assures that the IRS is not competing with other creditors for your property; however, the taxpayer is still liable for the amount due.  Generally, the conditions to have a tax lien withdrawn are as follows:

  • Filing of the NFTL was premature or otherwise not in accordance with the IRS’s administrative procedures.
  • The taxpayer has entered into an installment agreement to satisfy the liability for which the lien was imposed.
  • Withdrawal will facilitate the collection of the tax liability.
  • With the consent of the taxpayer or the National Taxpayer Advocate, the withdrawal of the NFTL would be in the best interests of the taxpayer and the United States.

For more information, refer to IRS Form 12277 (Application for the Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien).

A “release” is when the IRS or State tax agency formally acknowledges that a tax lien has been paid off, satisfied or is in some other way no longer enforceable.  The common ways to get a lien released include:

  • Checking that the IRS followed their own rules. If not, the lien must be released.
  • Preparing Form 656, Offer in Compromise. This is the infamous “pennies on the dollar” option taxpayers often hear on late night TV. IF you qualify and IF your offer is accepted, then the IRS has to release the tax lien.  Specifically, the lien will be released within 30 days of when the payment terms have been satisfied and the payment has been verified.
  • Entering into an Installment Agreement.
  • Paying off the tax owed in full.

For more information, refer to IRS Publication 1450 Instructions for Requesting a Certificate of Release of Federal Tax Lien.

Discharge of Property
A “discharge” removes the lien from specific property.  A “discharge” of property from a Federal tax lien may be granted if you qualify under certain Internal Revenue Code (IRC) provisions. For more information, refer to IRS Publication 783 (Certificate of Discharge From 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.  The IRS will do this if it is necessary to secure the other creditor’s approval for a sale. For more information, refer to IRS Publication 784 (Certificate of Subordination of Federal Tax Lien).

For example, let’s suppose the IRS holds a lien against your house. Suppose there is also a mortgage on the property, which means that a bank holds a lien as well. If the bank won’t get all of its money from the property sale after the Federal tax lien is satisfied, then it won’t necessarily approve the sale. However, if the IRS ‘subordinates’ its lien, the bank can paid first and the IRS can get the remainder.

Other Key Points To Keep In Mind

  • The distinction between whether a NFTL has been released or has been withdrawn is important because of the manner in which credit reporting agencies treat withdrawals verses releases. When credit reporting agencies receive a notice of the withdrawal of a NFTL, they delete any reference to the tax lien in the taxpayer’s credit history.  In contrast, when the credit reporting agencies receive a release of a lien, while they note the filing of the release in the taxpayer’s credit history, the filing of the release does not operate to remove the references to the tax lien from the taxpayer’s credit history. As such, if a lien has been satisfied, one should always ensure that it is withdrawn.
  • If you want the lien withdrawn, you’ll want to locate a copy of the Form 668(Y) that was filed as it has the serial number of your original case file with the courts.  You can usually obtain a copy of the form by contacting the county recorder where the lien was filed (typically the county you lived in for the tax year associated with the debt).
  • IRS Centralized Lien Operations  — To resolve basic and routine lien issues: verify a lien, request lien payoff amount, or release a lien, call (800) 913-6050 or fax (855) 390-3528.
  • IRS 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 .
  • IRS 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