A federal tax lien is where the government has a legal claim against your property because you did not pay a tax debt. The purpose of the lien is to protect the government’s interest in all your property, including real estate, personal property, and financial assets. Tax liens are created automatically once the IRS assesses your tax liability, sends you a bill that explains what you owe, and you fail or refuse to fully pay the debt on time. The IRS then can file a public document—the Notice of Federal Tax Lien—to alert creditors and the general public that the government has a legal right to your property.
If you have received a notice from the IRS that a federal tax lien has been placed on your property, there are several things you can do to get it removed. Read ahead for a list of ways to get a federal tax lien removed from your property.
- Pay your tax debt in full
This is the best and quickest way to get rid of an IRS lien. Once you pay off your debt in full, the IRS will remove the tax lien within 30 days. Unfortunately, a tax lien can stay on your credit report for up to 10 years. Because of this, the best (and most obvious) course is to avoid getting one at all by setting up an installment plan if you’re unable to pay off a tax debt in full. See my previous blog on the pros and cons of IRS installment plans.
- Subordination
If you aren’t able to pay off your debt right away, you may still be able to qualify for a loan or mortgage. Subordination is another option that allows creditors to move their debts ahead of the government’s debt. In other words, although subordination doesn’t actually remove the lien, it does allow creditors and banks to see past the lien. It puts their debt in first priority by law, thus allowing you to get a loan or a mortgage. To see if you are eligible for this, you can check with the IRS or seek the help of an experienced tax law attorney.
- Withdrawal
Withdrawal removes the public Notice of Federal Tax Lien. This is a great option because if the IRS withdraws a lien, credit reporting companies will remove the tax lien from your credit report. To qualify, you must pay the taxes on the lien in full, have filed all your tax returns for the past three years, and be current on estimated tax payments (if required). In certain circumstances, the IRS will withdraw a lien, even if the taxes are not fully paid, if you are paying the tax with an installment agreement. You can also determine your eligibility for withdrawal through the IRS or by speaking to a qualified attorney.
Additionally, it’s important to note that because liens attach to all of the taxpayer’s property, any property that is sold while a lien is in effect will have their sales proceeds paid out to the IRS before the taxpayer is paid. Also, because a lien becomes a matter of public record once it is filed, it will eventually show up on your credit report. Fortunately, as discussed above, the IRS has implemented ways to go about removing tax liens from your credit report as well.
Removing a federal tax lien from your property and credit history is a complex process that takes time and extra effort. If you need to do this, you should enlist the assistance of a qualified tax professional.
Robert V. Boeshaar Attorney at Law, LL.M.,PLLC
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