How To Remove a Federal Tax Lien

The Internal Revenue Service (IRS) files federal liens against taxpayers who have unpaid tax obligations. A federal tax lien is a document that goes on record with a county government as a matter of public record, usually in the location where the taxpayer lives, owns property, or conducts business. It notifies the general public that the taxpayer has an unpaid federal tax debt.

Liens can attach to the taxpayer's real property or personal property. They record the full amount of the debt owed to the IRS. The IRS is paid first out of any sales proceeds before the taxpayer receives money if the taxpayer sells property that has a lien attached to it.

Liens vs. Levies

The words "lien" and "levy" are sometimes used interchangeably, but liens are different from levies.

A tax lien is a document filed by the IRS to protect the government's ability to collect money, while a levy is the forced collection of tax, usually by confiscating money directly out of a bank account or a paycheck.

Notifying Taxpayers That a Lien Has Been Filed

The IRS will remind you of the tax debts you owe before it imposes a lien. The first step in the process begins when the IRS sends a notice of taxes owed and a demand for payment. The lien will automatically take effect 10 days after that. The IRS may also file a notice of federal tax lien in the public record at that point. This could have negative effects on your finances.

Preventing a Lien

Federal tax liens can be prevented by paying the tax in full before a lien is filed by the IRS, but that's not always possible for all taxpayers.

You can prevent liens by setting up an installment agreement with the IRS that meets certain requirements if you can't pay the entire amount in one lump sum. The IRS won't file a federal tax lien if a taxpayer sets up either a guaranteed installment agreement or a streamlined installment agreement, but it's up to the taxpayer to contact the IRS to establish these plans. The IRS won't prompt taxpayers to use these plans to avoid a lien.

Depending on how much you owe, you'll have the option to pay off the debt in 180 days or via a long-term installment agreement, which will require a setup fee. You'll continue to be assessed fees, interest, and some penalties until the debt is fully paid, even if you've entered into an installment plan.

Removing a Lien

The IRS will remove a federal tax lien if the lien was filed in error, when the outstanding balance is paid in full, or when the outstanding balance is otherwise satisfied, such as through a successful offer in compromise. It will also remove the lien if it becomes unenforceable, which can happen if it's expired due to the 10-year statute of limitations.

There are two basic ways to remove a federal tax lien: withdrawal and release.

Withdrawing a Federal Tax Lien

The IRS will rescind (or "withdraw") a federal lien if it was determined to have been originally filed in error. This would be the case if the wrong taxpayer is targeted for the debt. It's as if the lien had never been filed in the first place when the IRS withdraws it.

You should contact the IRS right away if you believe that such a situation could apply to you and a lien was filed against you by mistake. An IRS agent will review your account history to verify that you don't owe the outstanding tax and will prepare the paperwork necessary to withdraw it.

Releasing a Federal Tax Lien

Releasing a federal lien means that the lien doesn't encumber the property any longer. County records will be updated to reflect that the lien has been released. Liens are released within 30 days of full payment of the outstanding tax obligation or upon setting up a guaranteed or streamlined installment agreement.

Taxpayers can be eligible for lien release under the Fresh Start Program if their outstanding balance is under $25,000. You might consider bringing your balance under $25,000 by transferring some or all of your tax to a credit card or a home equity line, or by making payments to bring your balance under the $25,000 threshold.

How a Federal Tax Lien Impacts Your Credit

Lien information used to be picked up by the three major credit reporting bureaus, but all three agencies stopped collecting tax lien information in 2018. They removed all information about tax liens from credit reports. This means that tax liens will no longer show up on your credit report or affect your credit score.

But the IRS does make a tax lien a matter of public information even though the lien isn't officially part of your credit report. Lenders, credit card companies, landlords, and potential employers could learn about any liens against your property. They may use that information to make a judgment about you, such as a decision on a loan, a rental, or if you apply for a job.

Where To Get Help

Taxpayers who need assistance in dealing with tax liens and tax collections should seek the advice of a federally authorized tax practitioner, such as a tax attorney, a certified public accountant, or an enrolled agent. Taxpayers can also receive free help from publicly funded tax clinics and the Taxpayer Advocate Service.

Frequently Asked Questions (FAQs)