The definition of a Federal tax lien is when the government has a legal claim against your property because you either neglected or failed to pay your tax debt. The government does this to protect its interests in your real estate, personal property or financial assets.
A lien will be imposed if the IRS has assessed that you have a balance due and has sent you a Notice and Demand for Payment. If you do not pay what you owe, the IRS files a Notice of Federal Tax Lien lets your creditors know that the government has legal rights to your assets.
There are several ways you can rid yourself of a lien
- Pay your debt. After you have paid your debt in full, the IRS will release you from the lien within 30 days.
- Discharge the property. You can find out if you are eligible to discharge a specific property. For instructions, please click here. Or, watch this video.
- Receive a certificate of subordination. Subordination will not remove the lien but it will make it easier for you to obtain a loan or mortgage because it allows your creditors to move ahead of the IRS. For more information about how to apply, click here. Or, watch this video.
- Take a withdrawal. This will remove the public notice of the lien. Even though you must still pay the amount due, a withdrawal will assure that the IRS is not in competition with other creditors for your property. To find out if you are eligible for withdrawal, click here. Or watch this video.
There are two options to take a withdrawal. The first option may allow withdrawal of your Notice of Federal Tax Lien after it has been released. To be eligible, you must have satisfied your tax liability. You must also be in compliance for the past 3 years in filing all of your individual returns, business returns and information returns. Your estimated tax payments and federal tax deposits must also be current.
The 2nd option may allow withdrawal of your Notice of Federal Tax Lien if you pay your debt using direct deposit rather than regular installments. To be eligible for this option, you must meet the following criteria.
- You are a qualifying taxpayer (i.e. individuals, businesses with income tax liability only, and out of business entities with any type of tax debt)
- You owe $25,000 or less (If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting withdrawal of the Notice of Federal Tax Lien)
- Your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier
- You are in full compliance with other filing and payment requirements
- You have made three consecutive direct debit payments
- You can’t have defaulted on your current, or any previous, Direct Debit Installment agreement.
What having lien means for you
Having a lien can affect you negatively in many ways. It can attach all your assets and future assets, impact your credit score, attach to your business property and assets, and may continue even if you declare bankruptcy.
Avoid tax liens by paying your taxes on time. If you can’t don’t ignore letters from the IRS and arrange for payment options.
The difference between a lien and a levy
Liens secure the government’s interest in your property when you neglect to pay your debt. A levy will actually take your property away unless you have made arrangements to pay it off. A levy can, in effect seize your property.
If you have received notices from the IRS or the FTB informing you of a tax lien, contact us.