A IRS tax lien is a kind of security interest granted over a property to secure payment of the debt. A tax lien on a property is imposed to secure payment of tax debt. A tax lien may be imposed against delinquent taxes against property or on account of failure to pay taxes. In the United States a federal tax lien may be raised in connection with any kind of federal tax.
IRS can have a legal claim to your property as a security or payment for tax debts through a lien. IRS will file a Notice for a Federal Tax Lien only after:
- The liability of the tax payer is assessed
- IRS sends a “Notice and Demand for Payment bill informing the tax payer how much tax is due
- If the payer refuses to fully pay the debt within 10 days of receiving the notice
Once these steps are completed, a lien is issued for the amount of the tax debt. When IRS files a tax lien, all the creditors are notified about the claim against all property by IRS, including property that is acquired after the lien was filed.
Some Methods to Release a Tax Lien
IRS issues a Release of the Notice of Federal Tax Lien within 30 days of:
- The payer paying off the tax debt (including interest and other additions) or has the debt adjusted
- The payer submits a bond guaranteeing payment of debt
If after 10 years, IRS has not assessed a tax or has not filed another tax lien then the lien gets released automatically. If a release for tax lien is negligently not filed in time, the payer can file a suit. The case filed will be against the federal government and not against the employees of the IRS. However, this is not a good option as the tax lien will show on the credit report forever.
Payoff the Entire Amount
If the entire amount of back taxes is paid off, the lien is released and the payer can get back into good terms with IRS.
Apply for a Discharge of a Tax Lien
By giving up the property such as selling off the house, the payer can apply for a Certificate of Discharge. Every application for a certificate of discharge releases the lien against that property.
IRS Lien Can Be Made Secondary to Another Lien
Subordination is also an alternative where you can make the federal tax lien secondary to another lien.
Some other options are to setup a payment plan with IRS, offered in compromise or post a bond.
When is a Lien Withdrawn?
It can be withdrawn in the following cases provided that it is a filed notice of a tax lien.
- If there is an agreement on the payment being made in installments to clear off the debt on the lien
- If the notice was filed incorrectly and not as per the IRS procedures
- Withdrawal will speed collection of tax
- If the payer proves that withdrawing the lien is in the best interest for the government as well as the payer