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Tax Lien

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 their claim against your property. Once a tax lien is filed it remains in force for remaining time 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 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 is still a matter of public record and may impact your ability to get 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 A Notice of Federal Tax Lien will even be withdrawn before you have satisfied your back taxes if you owe $25,000 or less and have set-up a direct debit installment agreement.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 relief 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 $200,000 with a mortgage of $150,000 and has a buyer for the property. Closing costs will be $10,000 which will result 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 similar to Taxpayer A in the above example, 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 wanting 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 the IRS subordinate their lien to the new mortgage. This means the bank’s claim to the property moves ahead of the IRS.

The IRS will agree to the subordination when the refinancing will fully pay the tax debt and it may be possible to negotiate subordination when repayment will be less than the entire 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 by adding a one-time payment towards the taxes along with the larger monthly installment payment.

Remove IRS Tax Lien

Call the tax professionals at East Coast Tax Consulting Group to learn whether you may qualify for removal of an IRS tax lien or how to avoid the filing of tax lien if one has yet to be filed.

Contact Us 

You deserve the best in IRS tax representation, tax preparation, and tax planning services. At East Coast Tax Consulting Group, you’ll work with a licensed CPA who will handle your case from beginning to end. We invite you to contact our team to schedule a free, confidential consultation.

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