Getting Rid of a Federal Tax Lien

When personal or financial crises occur, circumstances can spiral out of control. Unpaid federal income taxes, whether due to prolonged illness, job loss, or divorce, can result in a tax lien being placed on a taxpayer’s property. This week’s blog discusses how to get rid of a federal tax lien. Next week, we’ll address how to avoid a federal tax lien altogether.


So, what is a federal tax lien?


A federal tax lien is the government’s legal claim to real estate, personal property and financial assets. The IRS can place a federal tax lien when a taxpayer neglects or refuses to fully pay a tax liability.


The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to the property. Property or assets subject to a tax lien cannot be sold or used for collateral on a loan. That can make a bad financial situation much worse.


Four ways to get rid of a federal tax lien:


  1. Paying the tax debt in full is the best way to get rid of a lien. The IRS releases the lien within 30 days after the tax debt has been paid.


  1. Discharge of property removes the lien from specific property, within Internal Revenue Code (IRC) provisions that determine eligibility.


  1. Subordination does not remove the lien, but allows other creditors to move ahead of the IRS, making it possible to get a loan or mortgage.


  1. Withdrawal removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for taxpayer property; however, the tax is still due.


Of course, the IRS decides whether a taxpayer can get rid of a tax lien, other than paying it in full. Eligibility requirements for taxpayers to get rid of a tax lien by discharge, subordination, or withdrawal include full compliance with other filing and payment requirements and up-to-date payments on any current or previous tax payment agreement.


All of this sounds pretty bad. Read next week’s post to learn more about avoiding federal tax liens altogether.