How to Remove an IRS Tax Lien

Do you owe back taxes to the IRS?  Did you know that the IRS may file a Notice of Federal Tax Lien if you owe $10,000 or more, unless you make arrangements to resolve your outstanding taxes?

An IRS tax lien is filed in the county in which you reside and/or own property and establishes the IRS’s claim against your property. Once a tax lien is filed, it remains in force for the period during which the IRS has to collect the tax. The collection period is generally ten years from the date the tax was assessed.

If the IRS has filed a Notice of Federal Tax Lien against you, it’s extremely important to know how to remove the tax lien. You should know the difference between a lien release and a lien withdrawal,  and the procedures to follow if you want to sell or refinance property with an existing tax lien.

IRS Tax Lien Release

The IRS will release a tax lien within 30 days after you satisfy the lien or it becomes unenforceable. A lien is satisfied when you pay your tax debt in full, including penalties and interest, or fulfill the terms of your offer in compromise. Generally, a federal tax lien becomes unenforceable once the 10-year statute of limitations for collecting back taxes has expired.

Under certain circumstances, you may request a partial lien release. If more than one person is named on a tax lien and that individual satisfies their obligation, a certificate of release will be issued for that taxpayer. For example, partial releases are issued in bankruptcy discharges, innocent spouse determinations, and acceptance of an offer in compromise. A partial lien release may also be issued when there are multiple tax liabilities on a Notice of Federal Tax Lien, and you request release for a specific liability that has been satisfied.

Withdrawal of IRS Lien

Although an IRS tax lien may have been released, it remains a matter of public record and may affect your ability to obtain a loan. In order to have it removed, you’ll need to file an “Application for Withdrawal of Filed Notice of Federal Tax Lien” with the IRS.

You will generally be granted the withdrawal if you have satisfied the tax debt as discussed above. A Notice of Federal Tax Lien will even be withdrawn before you have satisfied your back taxes if you owe $25,000 or less and have set up a direct debit installment agreement. You must have made at least three payments under the agreement and must be in compliance with all tax filing and payment requirements.

Discharge of Property from IRS Tax Lien

If you want to sell real property, such as your home or rental property, that is subject to a tax lien, you’ll need to apply for a “Certificate of Discharge from Federal Tax Lien.” The discharge removes the lien from the property and gives the purchaser clear title. A discharge does not relieve you from the tax liability, nor does it remove the lien from other property you may own.

The IRS will normally issue a Certificate of Discharge in the following circumstances

• The fair market value of property not discharged is at least double the tax liability plus all liens with priority over the tax lien.
• Partial payment is made on the tax liability in an amount determined by the IRS to be at least equal to its value in the property discharged.
• The IRS’s interest in the property to be discharged is valueless.

The following example illustrates a typical case of a taxpayer who owns a home with equity less than the amount owed to the IRS, resulting in partial payment:

Taxpayer A owns a home that is selling for $400,000, has a $350,000 mortgage, and has a buyer. Closing costs will be $10,000, resulting in net proceeds of $40,000 from the sale. However, the property is encumbered with a federal tax lien of $60,000. In order to sell the property, Taxpayer A should apply to the IRS for a discharge of this property from the federal tax lien. The IRS will receive the net proceeds of $40,000 in partial satisfaction of the lien, and $20,000 of the tax debt remains outstanding.

If you sell your principal residence and do not receive any proceeds from the sale, as in Taxpayer A’s example above, you may be eligible for a relocation expense allowance. If you do not have funds to pay your relocation expenses, you can complete and submit Form 12451, “Request for Relocation Expense Allowance” with the discharge application, and the IRS may allow you to keep a portion of the proceeds to pay these expenses.

Subordination of IRS Lien

It is not unusual for a taxpayer with a federal tax lien to want to refinance a home mortgage, either to reduce the interest rate or increase the mortgage amount in order to take money out. Since the IRS tax lien has priority over a new mortgage, a lender would not refinance the property.

The solution to this problem is to request that the IRS subordinate their lien to the new mortgage. This means the bank’s claim on the property takes precedence over the IRS’s claim.

The IRS will agree to the subordination when the refinancing proceeds are used to pay down the tax debt.  In addition, if the taxpayer is able to refinance their home at a lower interest rate, the IRS may agree to the subordination if you can demonstrate you can make a larger monthly installment payment towards the back tax debt. In some cases, the IRS may be persuaded to accept a one-time payment toward the taxes along with the larger monthly installment payment.

Remove IRS Tax Lien

Dealing with an IRS tax lien can be stressful and overwhelming, but you don’t have to face it alone. Whether a lien has already been filed against you or you’re concerned about one being filed, the experienced tax professionals at East Coast Tax Consulting Group are here to help.

Our team can evaluate your specific situation and walk you through your available options,  from lien releases and withdrawals to discharge, subordination, and installment agreements.

Don’t let a tax lien threaten your financial future, damage your credit, or put your property at risk. Contact East Coast Tax Consulting Group today at 561-826-9303 for a free, confidential consultation to take the first step toward resolving your tax issues.

Frequently Asked Questions About IRS Tax Liens

What is an IRS tax lien?

An IRS tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. It attaches to all of your assets, including real estate, financial accounts, and personal property, and can also apply to future assets acquired during the lien’s duration.

When can the IRS file a tax lien against me?

The IRS can file a Notice of Federal Tax Lien once you owe $10,000 or more in back taxes and have been sent a bill that remains unpaid. The lien protects the government’s interest against other creditors and puts the public on notice of the IRS’s claim.

What is the difference between a tax lien and a tax levy?

A tax lien is a legal claim against your property, while a tax levy is the actual seizure of that property. A lien secures the government’s interest, whereas a levy is a more aggressive collection action that allows the IRS to take your wages, bank accounts, or physical assets.

Will an IRS tax lien affect my credit?

While the IRS no longer directly reports tax liens to credit bureaus, a filed lien is still a matter of public record. Lenders and financial institutions can discover it during a title search or loan application process, which can make it difficult to obtain financing or refinance existing loans.