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Published: | Last Updated: August 22, 2024
A lien is different from alevy. A levytakes your property or assets, where a lien secures the government’s interest in your property.
A federal tax lien is a legal claim to your property (such as real property, securities and vehicles), including property that you acquire after the lien arises.
If the IRS files a lien againstyour business, it attaches to all business property and to all rights to business property, including accounts receivable.
A lien is just one of thecollection procedures the IRS may use if you file or pay your taxes late. Publication 594, The IRS Collection Process,helps you understand the entire IRS collection process.
What do I need to know?
A federal tax lien arises automatically if you don’t pay the amount due after receiving your first bill. The government also may file a Notice of Federal Tax Lien (NFTL) in the public records.
- This notifies creditors the IRS has a claim against all your current and future property;and
- The NFTL may appear on your credit report and may harm your credit rating;
- To reduce the harm to your credit rating read Releasing a Lien and Withdrawing a Lien in the What should I do? Section.
- Note: In 2018, tax liens were removed from consumer credit reports however they may still be found under a public records search.
Generally, withinfive business days of filing the NFTL, the IRS will send you a Notice of Your Right to a Collection Due Process Hearing. You’ll have until the date shown on the notice to request aCollection Due Process (CDP) hearing with the Office of Appeals. See Publication 1660, Collection Appeal Rights, for a full explanation of the CDP process. At the CDP hearing, you may raise many issues which include proposing another way topay your debt, and in some cases, to contest the debt itself.
Once a lien arises, the IRS generallycan’t release it until you’ve paid the tax, penalties, interest, and recording fees in full or until the IRS is no longer legally able to collect the tax. However, in certain circ*mstances, explained below in the What should I do? section, a lien may be withdrawn, discharged, or subordinated.
Releasing a Lien
The IRS will release the lien once you pay the debt – either in a lump sum or over time. However, if the IRS releases a lien, it may remain on your credit report for many years. A lien withdrawal, discussed below, however, removes the lien from your credit report.
Withdrawing a Lien
If the Notice of Federal Tax Lien (NFTL) included on your credit report is causing you a problem, you can apply to have the notice withdrawn if you meet any of the criteria listed below. This means it’ll be removed from your credit report, as if the lien had never occurred.
Actions
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First and foremost,don’t ignore noticesfrom the IRS. Even if you can’t pay the taxes you owe, responding to a notice before the due datecould prevent a lot of trouble. Be sure tokeep your address up to date with the IRSso you receive all notices and letters.
- If you can’t pay the full amount you owe, you havepayment optionsto help you settle your debt over time.
- If you disagree with the IRS that you owe the debt, you may be able to raise your arguments in aCDP hearingor request anaudit reconsideration.
- You can hire an attorney, certified public accountant (CPA), or enrolled agent to help you if you wish. But before you do, visit ourChoosing a Tax Return Preparerpage first.
- If your income is below a certain level, you may qualify forLow Income Taxpayer Clinic(LITC) representation.
The IRS may withdraw a NFTL if:
- You’ve entered into a payment agreement to satisfy the tax liability, unless the agreement provides otherwise.
- For certain types of taxes, the IRS will routinely withdraw a NFTL, if you enter into a direct debit installment agreement and meet certain other conditions. You can get more information from the IRS representative when setting upyour agreement.
- By withdrawing the lien, it will help you pay your taxes more quickly.
- The IRS didn’t follow proper procedures.
- The lien was filed during a bankruptcy automatic stay period, when the IRS generally stops most collection activity, or
- It’s in your best interest, as determined by theTaxpayer Advocate and in the best interest of the government. For example, this could include when your debt is satisfied, and you request a withdrawal.
- If you’ve paidyour tax debt or fully paid your accepted Offer in Compromise and, if applicable, the outstanding amount of any related collateral agreement, and the lien was released, you can ask the IRS in writing to withdraw the lien. The IRS will generally do that, so long as:
- You’ve filed all required returns – individual, business, and information – for the past three years, and
- You’re current on your estimated tax payments and federal tax deposits, as applicable.
You can apply to have the lien withdrawn by using Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien (Internal Revenue Code Section 6323(j).
Other situations with liens that might apply to you
- A “discharge” removes the lien from specific property. For example, if you want to sell a certain piece of property that’s under a lien and intend to use part or all proceeds to pay your tax debt, you can apply for a Certificate of Discharge.
- See IRSPublication 783, Instructions on how to apply for a Certificate of Discharge From Federal Tax Lien.
- A “subordination” doesn’t remove the lien but allows other creditors to move ahead of the IRS, which may make it easier to obtain a loan or refinance a mortgage.
- See IRSPublication 784, Instructions on how to apply for a Certificate of Subordination of Federal Tax Lien.
Note:The IRS hasseveral videosthat relate to each topic that may be helpful to view in addition to the information shared here.
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How will this affect me?
When the IRS files the Notice of Federal Tax Lien (NFTL) in the public record, it puts your creditors on notice that the IRS has a claim. The filing of thelien may limit your ability to get credit.
The lien attaches to all assets, personal or business, (such as real estate, securities, vehicles), as well as future assets acquired in the period of the duration of the lien.
The lien attaches to all business property and all rights to business property, including accounts receivable.
If you file bankruptcy, your tax debt andlien may continue after the bankruptcy.
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Wait, I still need help.
The Taxpayer Advocate Service is an independent organization within the IRS that helps taxpayers and protects taxpayers’ rights. We can offer you help if your tax problem is causing a financial difficulty, you’ve tried and been unable to resolve your issue with the IRS, or you believe an IRS system, process, or procedure just isn’t working as it should. If you qualify for our assistance, which is always free, we will do everything possible to help you.
Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.
Low Income Taxpayer Clinics (LITCs) are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. For more information or to find an LITC near you, see the LITC page on the TAS website or Publication 4134, Low Income Taxpayer Clinic List.
Resources and Guidance
Publication 594,
IRS Collection Process
Download
Understanding a Federal Tax Lien
Download
Form 12277,
Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien
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Did you know there is a Taxpayer Bill of Rights?
The taxpayer Bill of Rights is grouped into 10 easy to understand categories outlining the taxpayer rights and protections embedded in the tax code.
It is also what guides the advocacy work we do for taxpayers.
