If you have a tax liability of about $10,000, the IRS will likely place a tax lien on your property. The IRS does this by filing a Notice of Federal Tax Lien, which publicly notifies your creditors that the IRS has an interest in your property.
When this happens, you risk losing your property if you don’t pay your tax debt. A tax lien still attaches to your future assets, as long as you acquired them during the lien duration.
Upon the filing of a Notice of Federal Tax Lien by the IRS, your ability to get credit is limited. If you’re a business owner, a tax lien also attaches to your business property, including accounts receivable.
Perhaps the most important thing to note is that the Notice of Federal Tax Lien, tax debt, and lien continues even after filing for bankruptcy.
You can avoid a tax lien by being compliant with your tax obligations. While you may not be entirely compliant, being proactive and finding a workable solution for your tax debt is a great way to avoid an IRS tax lien.
If you’ve already been slapped with a tax lien by the IRS, there are various ways of avoiding its effects, and a tax lien release is one of those.
When a tax lien is released, it means that the IRS clears the Notice of Federal Tax Lien and its interest on your property. A tax lien release is achieved when the IRS files a Certificate of Release of Federal Tax Lien.
Despite the release, a tax lien will still show up on your credit report for up to seven years. This only ceases to be the case if the IRS withdraws the tax lien.
The acceptance requirements for an IOC are strict, and you must provide a lot of confidential financial information to the IRS. An offer can only be accepted if the IRS believes that the amount offered is the most it can get.
Normally, there is a statute of limitations on the collection of IRS taxes. If the expiration date on collection arrives, the IRS has no power to enforce the lien. Usually, tax liability expires ten years after filing your return or after the IRS assesses your tax debt.
Keep in mind that the statute of limitations is extended if you file for bankruptcy, an offer in compromise, or sign the Tax Collection Waiver form.
Giving the IRS a bond to guarantee payment of your tax debt has a similar effect as paying your taxes in full. However, qualifying for a surety bond could be challenging.
Most taxpayers get lost in the tax lien withdrawal vs release discussion. A tax lien withdrawal gets rid of the Notice of Federal Tax Lien. It is also a sign of assurance that the IRS is not in competition with other creditors for interest in your property.
To get a lien withdrawal, you have to complete the Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. In turn, the IRS will file a document known as Withdrawal of Filed Notice of Federal Tax Lien. Through this document, the IRS withdraws an active Notice of Federal Tax Lien.
If you have already set up an installment agreement with the IRS and have not exceeded the $25,000 threshold, you can convert it into a direct deposit installment agreement. If your balance is greater than this limit, you can pay it down after converting to a DDIA.
When a tax lien release or withdrawal isn’t an option, you may explore the options discussed below.
A “discharge” means that the IRS removes the lien from a particular property. The IRS has various provisions that state the eligibility for receiving a discharge.
To get a discharge of property, you have to complete Form 14135, which is the Application for a Certificate of Discharge From Federal Tax Lien, and then mail it to the IRS.
Subordination doesn’t remove a tax lien. Instead, it allows another creditor to move ahead of the IRS in priority. This could make it easier to secure financing, and the IRS could favor this move if it is in their best interest. For instance, subordination can help you refinance a mortgage, which could in turn put you in a better position to repay the IRS.
Tax lien removal means that the IRS removes the notice of its interest in your property from the public. If the IRS has placed a lien on your property, you can get a tax lien release by paying your debt in full. If that is not attainable, you can file an OIC or wait for the Statute of Limitations on collection to expire.