IRS Tax Lien: How a Federal Tax Lien Works and Gets Released

“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 the books (assesses your liability);
  • Sends you a bill that explains how much you owe (Notice and Demand for Payment); and
• You:
  • Neglect or refuse to fully pay the debt in time.

“A lien is a legal claim against all your current and future property. When you don’t pay your first bill for taxes due, a lien is created by law and attaches to your property.”

“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.”

“A Notice of Federal Tax Lien gives public notice to creditors. We file the Notice of Federal Tax Lien so we can establish the priority of our claim versus the claims of other creditors. The Notice of Federal Tax Lien is filed with local or state authorities, such as county recorder of deeds or the Secretary of State offices.”

“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.”

“While a federal tax lien is a legal claim against your property, a levy is a legal seizure that actually takes your property (such as your house or car) or your rights to property (such as your income, bank account, retirement account or Social Security payments) to satisfy your tax debt.”

• We usually seize only after the following things have occurred.
• We assessed the tax and sent you a bill,
• You neglected or refused to pay the tax, and
• We sent you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before the seizure.
• However, there are exceptions for when we don’t have to offer you a hearing at least 30 days before seizing your property. These include situations when:
  • The collection of the tax is in jeopardy,
  • A levy is served to collect tax from a state tax refund,
  • A levy is served to collect the tax debt of a federal contractor, or
  • A Disqualified Employment Tax Levy (DETL) is served. A DETL is the seizure of unpaid employment taxes and can be served when a taxpayer previously requested a Collection Due Process appeal on employment taxes for other periods within the past 2 years.

“We can’t issue a new levy if you have a current or pending payment plan, Offer in Compromise, or if we agree that you’re unable to pay due to economic hardship, meaning seizing your property would result in your inability to meet basic, reasonable living expenses.”

“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.”

“Section 6325(a) of the Internal Revenue Code directs us to release a Federal tax lien within 30 days of when the liability is fully paid or becomes legally unenforceable, or the IRS accepts a bond for payment of the liability.”

“A “release” of a Federal Tax Lien means that we have cleared both the lien for your debt and the public Notice of Federal Tax Lien.”

We will release your lien if:

• Your debt is fully paid,
• Payment of your debt is guaranteed by a bond, or
• You have met the payment terms of an Offer in Compromise which the IRS has accepted, or
• The period for collection has ended. (In this case, the release is automatic.)

“If the federal tax lien has not been released within 30 days of satisfying your tax liability, you can request a Certificate of Release of Federal Tax Lien.”

“The Notice of Federal Tax Lien only shows your assessed balance as of the date of the notice. It doesn’t show your payoff balance or include our charges for filing and releasing the lien.”

“When conditions are in the best interest of both the government and the taxpayer, other options for reducing the impact of a lien exist.”

“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.”

“A "discharge" removes the lien from specific property.”

“"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.”

We may withdraw a Notice of Federal Tax Lien if:

• You’ve entered into a payment plan to satisfy the tax liability, unless the Agreement provides otherwise. For certain types of taxes, we routinely grant Notice of Federal Tax Lien withdrawal requests if you’ve entered into a direct debit payment plan and meet certain other conditions,
• It will help you pay your taxes more quickly,
• We didn’t follow IRS procedures,
• It was filed during a bankruptcy automatic stay period, or
• It’s in your best interest and in the best interest of the government. For example, this could include when your debt has been satisfied and you request a 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.

“For the purposes of this section, “unpaid balance of assessments” (UBA) means the total balance of all unpaid and assessed tax periods for the taxpayer.”

In general, an NFTL should be filed in the following situations:

• […]
• the aggregate UBA is $10,000 or more
• file an NFTL
• […]
• an installment agreement (IA) does not meet streamlined, guaranteed, or in-business trust fund express criteria
• file an NFTL.
• […]
• an open account with an aggregate UBA of $10,000 or more is being reported as currently not collectible
• file an NFTL.

“Generally NFTLs will not be filed when the UBA is less than $10,000, but they may be filed if they will protect the government's interest, such as in the case of an impending bankruptcy or other exigent circumstances.”

“Except in rare circumstances, an NFTL should not be filed when the balance to be reflected on the NFTL is less than $2,500 (remember, an NFTL can accommodate 15 statutory liens).”

“The IRS may file a NFTL at any time. You may be entitled to file an appeal under the Collection Appeals Program (CAP) before this occurs or request a Collection Due Process hearing after this occurs.”

“Not paying your taxes when they are due may cause the filing of a Notice of Federal Tax Lien and/or an IRS levy action.”

“We may file a Notice of Federal Tax Lien to protect the government’s interest in your property.”

“Within five business days of the first filing of the Notice of Federal Tax Lien for a specific debt, we will send you a Notice of Federal Tax Lien Filing and Your Right to a Collection Due Process Hearing. You’ll have until the date shown on the notice to request a Collection Due Process hearing with Appeals.”

“Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.”

“Bankruptcy — If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.”

“You can avoid a federal tax lien by simply filing and paying all your taxes in full and on time. If you can’t file or pay on time, don’t ignore the letters or correspondence you get from the IRS. If you can’t pay the full amount you owe, payment options are available to help you settle your tax debt over time.”