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What you need to know about federal tax liens

On Behalf of | Sep 14, 2021 | Uncategorized

One of the most confusing tax-related topics is federal tax liens. A lien occurs when you fail to pay or refuse to pay a tax debt and the government gets a legal claim against your property. It protects the government’s interests in all the possessions you own, including financial assets, personal property and real estate. 

For a tax lien to occur, the IRS first calculates your liability and sends you a bill known as the Notice and Demand for Payment, which breaks down your tax debt. Then, if you refuse or fail to pay the debt on time, the IRS files a Notice of Federal Tax Lien. This is a public document that notifies creditors that the government has a legal claim against your possessions. 

Possible resolutions to a tax lien

The best way to do away with your federal tax lien is to pay your total debt to the government. When you pay your tax debt in full, the IRS will, within 30 days, release your lien. Whenever you are confused, the guidance of an attorney who is knowledgeable and experienced in IRS matters can help. 

However, there are other options to rid yourself of a federal tax lien. They include the following methods which apply when conditions are in the best interest of both you and the government. 

Discharge of property

“Discharging” simply means releasing some of your possessions from the lien. A number of Internal Revenue Code (IRC) arrangements determine whether certain property qualifies to be removed from a federal tax lien. You will need to make an application for a Certificate of Discharge from Federal Tax Lien to go through with the process. 

Subordination

Although subordination does not entirely remove a tax lien, it gives you the leeway of getting a mortgage or loan. In essence, subordination is an agreement that permits a new creditor to overtake the IRS in priority. While the IRS tax lien still remains on your property, its position will be after the security interest of the new lender. You can start the process by applying for a Certificate of Subordination of Federal Tax Lien

Withdrawal

A withdrawal gives you some sort of a break as you work on paying what you owe the government. This is because it eliminates the public Notice of Federal Tax Lien. Effectively, this ensures that no other creditors can lay a claim to your property, except the IRS. However, you will still have to pay back your tax debt to completely do away with your tax lien.

You can ask for a lien withdrawal after paying back your tax debt, or if your balance does not exceed $25,000. When you get a withdrawal without having repaid your entire tax debt, you should be able to repay the balance before the collection statute expires, or within five years, whichever comes first. 

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