Liens give the IRS a legal claim to a taxpayer’s property as security or payment for a tax debt. A tax lien arises after:
- The IRS assesses the liability,
- The IRS sends Notice and Demand for Payment, and
- The taxpayer neglects or refuses to fully pay the debt within 10 days after notification.
Once these requirements are met, a lien is created for the amount of your tax debt. By filing notice of this lien, creditors are publicly notified that the IRS has a claim against all of your property, including property you acquire after the lien is filed.
The lien attaches to all your property and to all your rights to property (accounts receivable). Once a lien is filed, your credit rating will likely be harmed significantly. This may severally hinder your ability to borrow.
Appealing the Filing of a Lien
The law requires the IRS to notify the taxpayer shortly after a tax lien is filed. The notice is generally sent to your last known address and gives you Collection Due Process Hearing Rights. If this notice is responded to timely, and a hearing is requested, taxpayers are given the opportunity to present their case to an independent appeals officer. At the hearing, they can request a collection alternative as well as a release, discharge, subordination, or withdrawal of the Notice of Federal Tax Lien. Each of these items is discussed in detail below.
Releasing a Lien
The IRS will release a Notice of Federal Tax Lien within approximately 30 days when either of the following are met and all fees are paid to the jurisdiction that recorded the lien:
- After satisfying the tax due by paying the debt or having the account adjusted; or
- After a bond is submitted, guaranteeing payment of the debt
Usually 10 years after a tax is assessed, a lien releases automatically. In rare circumstances, the IRS will re-file a tax lien or reduce the amount to judgment, which increases the 10 year period in which the lien is valid. If the IRS knowingly or negligently does not release a Notice of Federal Tax Lien when it should be released, the federal government can be sued for damages.
Discharging a Lien
If a taxpayer is giving up ownership of property, such as when a home or business is sold, a taxpayer may apply for a Certificate of Discharge. Each application for a discharge of a tax lien releases the effects of the lien against a particular piece of property. If a taxpayer is selling his primary residence, the taxpayer may also apply for a relocation expense allowance.
Subordinating a Lien
In some cases, a federal tax lien can be made secondary to another lien. That process is called subordination.
Requesting Withdrawal of a Lien
In certain circumstances taxpayers can request a lien be withdrawn if:
- The taxpayer enters into a certain type of installment agreement to pay the tax,
- The notice was filed too soon or in violation with IRS procedures,
- Withdrawal will speed collecting the tax, or
- Withdrawal would in the best interest of the government and taxpayer.
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