IRS Tax Lien Release: What to Do If You Have a Tax Lien Against Your Assets
A tax lien is the government’s claim to your property based on an unpaid tax liability. The IRS can file liens against your real estate, personal property, and financial assets. When a lien is on your assets, you usually can’t sell the assets or take out loans against them.
Ideally, you should make arrangements to resolve your unpaid taxes before the IRS issues a federal tax lien. But if a lien is already in place, there are ways to get it released and withdrawn. Take a look at these options. Or contact us at The W Tax Group today and we’ll help you get your lien released.
How to Get Your Lien Released
There are several different ways that you can get the IRS to release your federal tax lien. But it’s important to note that a lien release removes the lien from one or more of your assets. The lien may continue to exist on the public record until it’s withdrawn. Here are some of the ways to get a lien release.
Pay off Your Tax Liability
The lien exists to protect the IRS’s ability to recoup your unpaid taxes. If you pay your tax liability, the lien will no longer be necessary, and the IRS will release it.
Generally, you need to pay your tax liability in full to get the lien released. However, if you qualify for an offer-in-compromise, you can pay less than you owe, and the IRS will write off the rest. This also satisfied the lien release requirements, but taxpayers usually only qualify for this program if they have very limited income and assets.
Set Up a Payment Plan with Direct Debit
You may be able to get the lien released (and potentially even withdrawn) if you set up a monthly payment plan with direct debit from your bank account. If you have an existing installment agreement, the IRS may also agree to release the lien if you set up direct debit on that arrangement.
To qualify for a lien withdrawal by setting up a direct debit on a payment plan, you must meet the following criteria:
- You owe $25,000 or less.
- Your payments are enough to pay off the tax liability by the earlier of 60 months or before the collection statute expires.
- You’re compliant with all filing and payment obligations.
- You haven’t defaulted on your current or previous direct debit installment agreements.
If you meet these criteria, the IRS should withdraw your lien after you successfully complete three direct debit payments. Note these rules apply to individuals. Businesses can only use a direct debit installment agreement to get a lien withdrawn if they are out of business or only owe income tax.
Prove the Lien Is Preventing You from Paying
Sometimes a lien may be preventing you from paying your tax bill. Here’s an example, imagine that the lien is on your house so you can’t get a loan against your equity. If you could take out a loan, you could pay off the tax bill.
In this situation, you need to reach out to the IRS and prove how the lien is preventing you from paying. If the IRS agrees, the agency will release the lien so that you can pay your tax liability.
Request a Discharge from Specific Property
You can request to have the IRS discharge (remove) the lien from a specific piece of property. If you pursue this option, the lien will continue to exist and be attached to the rest of your property, but it will not be attached to that particular piece of property. The IRS discharges liens from specific property for a few different reasons.
In some cases, you may be able to get your property released from the lien if your other property covers double the tax liability. In other cases, you can get liens discharged from property by paying the same amount of the IRS’s lien interest in the property or by proving that the IRS’s interest in the property has no value. The IRS may also discharge a lien so that you can sell the property and pay the tax bill.
To apply for a discharge, use Form 14135 (Application for Certificate of Discharge of Property from Federal Tax Lien).
Ask for Lien Subordination
A lien subordination is when the IRS agrees to take a backseat to other creditors. To apply for a lien subordination, use Form 14134 (Application for Certificate of Subordination of Federal Tax Lien). There are a few different situations where the IRS will agree to a lien subordination.
For example, the IRS may subordinate its lien so you can refinance a loan against the property to a lower interest rate in order to make larger monthly payments on your taxes. Or subordinating the lien may help convince a creditor to give you a loan against your equity and then, you can use those funds to pay down your IRS bill.
How to Get a Lien Withdrawn
Again, a lien release removes the lien from your assets, but a lien withdrawal removes the public record of the lien. If the lien has been released, you can apply for a withdrawal if you meet these criteria:
- You have satisfied the tax liability.
- You have filed all required returns for the last three years.
- You are current on all estimated tax payments and deposits.
As indicated above, you can also get a lien withdrawn after you set up a direct deposit installment agreement if you meet the other requirements.
To apply for a lien withdrawal, you should use Form 12277 (Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien).
Lien Withdrawal for IRS Mistakes
You can also get a lien withdrawn from the public record if the IRS made a mistake. Here are some of the procedural errors that can lead to an incorrect lien filing:
- An IRS employee knows that you have a carryback, overpayment, or adjustment that will cover the unpaid taxes, but they still filed the federal tax lien.
- The IRS filed the lien while a stay was in place due to a bankruptcy case.
- The IRS filed the lien while you were in a combat zone, on a contingency mission, or hospitalized due to serving in a combat zone.
- The IRS filed the lien for a shared responsibility payment due to not having health insurance.
- The lien was a duplicate.
- The lien was supposed to be in somebody else’s name.
Unfortunately, a mistaken lien will generally not go away on its own. You will have to reach out to the IRS and explain the mistake that was made.
What the IRS Considers When Removing Federal Tax Liens
The IRS considers several factors when deciding to release or withdraw federal tax liens. First and foremost, the agency considers if a tax lien release or withdrawal will help you pay your taxes. If releasing the lien will only cover part of your tax liability, the IRS tries to make sure that the lien release will not compromise the ability to collect the rest of the balance.
When considering a lien withdrawal, the IRS wants to see a pattern of compliance. Your chances will be lower or non-existent if you’re behind on other filing or payment obligations. The agency will also consider if the lien is likely to drive you toward bankruptcy. If so, the IRS considers if bankruptcy will make you more or less likely to pay.
The IRS also considers the reasons the lien was placed. For instance, if the lien was due to defaulting on a payment agreement, the agency will be less likely to approve a lien withdrawal based on a direct debit installment agreement.
If the IRS can achieve the same effect with a lien discharge or release, it will generally select those options over a withdrawal.
How Federal Tax Liens Affect Your Credit
As of 2018, the IRS no longer updates the credit reporting bureaus about federal tax liens. That means that liens don’t appear on your credit report, but they are still public record. Before offering loans, creditors typically request a Risk View Liens and Judgments Report from LexisNexis, and then, they can see any of your liens. This can severely compromise your ability to obtain loans or credit.
Get Help with Federal Tax Lien Release
Getting a lien release or withdrawal requires some finesse. You need to ensure you’re compliant with current tax obligations, file the right paperwork, and potentially negotiate with the IRS.
You don’t have to deal with the IRS on your own. We can help you — let’s talk. To learn more, contact us at The W Tax Group today.