Understanding Federal Tax Liens and How to Remove Them

Understanding Federal Tax Liens and How to Remove Them

• Nov 15, 2022

If you’ve been told that a federal tax lien is being placed on your property, you might be a little uncertain about what, exactly, that means. Does the IRS now have a claim to your property? Could they repossess it? Just how serious is a tax lien, and is it possible to get it removed? At the IRS Advocates, we help taxpayers to deal with issues like federal tax liens and find ways to help them get their tax debt under control. Keep reading to find out more about tax liens and what you can do about them.

What Is a Tax Lien?

A federal tax lien means that the IRS has placed a legal claim on your property because you have failed to pay tax debts. These liens are far from the IRS’s first course of action when it comes to dealing with tax debts, so it typically means that the debt is significantly overdue. The IRS will first assess your liability, then send you a bill and several notices regarding the payments you owe. At least one of these notices will inform you that the IRS will place a lien on your property if you don’t pay by a given date. If you neglect to fully pay your debt by the deadline given, they will place a tax lien on your property.

A tax lien does not allow the IRS to seize your property. Rather, a lien alerts creditors that the government has a legal right to your property. This can make it difficult to qualify for credit, and if you attempt to sell the property, the IRS can then seize the profits of the sale to settle your tax debt.

How Does It Differ from a Levy?

It’s worth noting that tax liens and tax levies are actually two different types of action that the IRS can take when a tax debt goes unpaid for too long. A tax lien simply secures the government’s interest in your property due to the unpaid debt, while a levy actually allows the IRS to take your property. If you have a levy on your property, don’t assume that it is the same as a lien; you may end up with an unpleasant surprise when the IRS seizes and sells your property to pay your debts.

How Does a Lien Affect You?

As we stated earlier, a tax lien can impact your ability to qualify for credit. Though tax liens don’t directly impact your credit score, if you’re applying for a loan of any kind, your creditor will likely check for any liens on your existing property. If they see the federal tax lien on your property, it’s highly unlikely that you’ll qualify for a loan.

Additionally, if you file for bankruptcy, tax debts and tax liens may not be included. You will still have to deal with the burden of your tax debt, even if your other debts are settled or redistributed.

How to Remove a Tax Lien from Your Property

So, if you’ve had a federal tax lien placed on your property, what can you do to get it removed? Here are a few options to consider:

1. Discharge of property – A discharge can remove the lien on a specific property, but there are eligibility requirements that you must meet. You can find out more about how to qualify and apply for a discharge of a federal tax lien here, or contact the IRS Advocates to speak with an expert about having your lien discharged.
2. Subordination – While this option does not technically remove the tax lien, it does allow other creditors to move ahead of the IRS in their claim to your property. This can help you to qualify for a loan, if this is your primary concern regarding the lien on your property.
3. Withdrawal – A withdrawal can remove the public Notice of Federal Tax Lien, but you will still be liable for the amount due. Generally, a withdrawal is only offered if you’ve satisfied your tax liability or if you’ve entered into an installment agreement that includes direct debit payments for your tax debt.

Having a tax lien on your property can be a stressful experience, and only adds to the anxiety associated with having federal tax debt. If you’ve had a lien placed on your property, or if you have tax debts and are concerned that the IRS will proceed to a federal tax lien soon, contact the IRS Advocates today for professional assistance with settling your tax debts.