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What you need to know when appealing a tax lien

On Behalf of | Mar 4, 2022 | Internal Revenue Service, Tax Liens

 

If you fall behind on your taxes, you may be subjected to a tax lien from the IRS, which, essentially, is a legal claim on your property. A tax lien, while no longer appearing on credit reports, still appears to creditors. That means a lien could prevent you from receiving a loan or even refinancing your home. Worse yet, if not resolved, a lien could turn into a tax levy, which could result in assets being seized. 

If you find yourself on the receiving end of a tax lien that you disagree with, you have the right to an appeal. If this is the case, upon receiving the Notice of Federal Tax Lien (NFTL), you should contact the IRS officer assigned to you and request to speak to a supervisor to explain your disagreement. There’s a chance you could settle the matter during this conversation. If you do not reach an agreement, you may then file for one of two options: Collection Due Process (CDP) or Collection Appeals Program (CAP). 

Collection due process hearings

After receiving notice of the lien, you’ll have 30 days to turn in IRS form 12153 for a CDP hearing. Here, you’ll specify if your goal is: 

  • Lien subordination: this will not remove the lien but will allow you to perform actions like receiving loans or selling your home without the lien as a barrier. 
  • Lien discharge: this removes the lien from a specific piece of property, allowing you to sell it with no obstacle. 
  • Lien withdrawal: this would remove the lien altogether, though it does not absolve you of your existing tax debt. 

In some cases, through a CDP, you can also dispute your tax liability outright. Usually, this is reserved for cases where you believe the IRS made some sort of error or declined to give you proper notice of the situation, and you have not to this point disputed the existing tax liability. Issues that have been heard in the past cannot be brought up again. If you disagree with the final ruling of a CDP hearing, you can appeal the decision to a tax court. 

Collections appeal process hearings

CAP hearings can be requested in response to an NFTL or the modification or termination by the IRS of any installment payment plan. In addition, a CAP can be requested in advance of an oncoming tax lien. You can request a CAP by turning in IRS form 9423 within 48 hours of contacting an IRS officer with your dispute should you fail to reach a solution at that time. 

A CAP is generally quicker than a CDP, and any IRS collection efforts towards you will be frozen until a decision is reached. However, unlike a CDP, any CAP decision is final and cannot be appealed. Also, because a CAP can be requested in advance of a tax lien notification, you must choose this option with great consideration. Any dispute heard in a CAP hearing cannot be brought back up later if you decide to pursue a CDP hearing. 

 

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