The potential options to challenge a lien or to have the filing of a notice of federal tax lien withdrawn depend on where you are in the process. If you have received a letter from the IRS stating that they filed a notice of federal tax lien, please give us a call for a free consultation to determine how we can help you resolve your tax issues.

Introduction to IRS Liens and IRS Levies

Liens and levies are powerful tools used by the IRS and state taxing authorities to collect tax debts.

A lien is a claim against property. An IRS lien has a very broad reach. Generally, an IRS lien attaches to most assets that the taxpayer owns when the lien comes into existence and it also attaches to most property acquired by the taxpayer after the lien comes into existence.

Whereas a lien is a right in property, a levy is a seizure of property to satisfy a lien. Generally, the IRS can levy on assets that are “attached” by the IRS lien.

A lien comes first, and a levy comes later after additional notices are sent to the taxpayer. See IRS Levy Relief.

An IRS lien stays in place until IRS tax debt is paid or the statute of limitations on IRS collection lapses, which is generally 10 years from the date the tax was assessed.

A lien has the practical effect of restricting the taxpayer’s ability to sell property and it can negatively affect the taxpayer’s ability to obtain financing.

Understanding IRS Lien versus Notice of Filing of Federal Tax Lien (NFTL)

Much like a bank does with a mortgage, the IRS files a notice of federal tax lien at your local courthouse to put the world on notice of its claim against your property and to hold its relative position among competing creditors.  When the IRS files the notice of federal tax lien, the IRS must send you notice within 5 business days.  The filing of the notice of federal tax liens gives you important rights to request a Collection Due Process (“CDP”) hearing. At the hearing, you can contest the filing with IRS Appeals. Generally, in order to receive a CDP hearing, you must file Form 12153 – Request for Collection Due Process or Equivalent Hearing  within 30 days of the letter (link to Form 12153).

The IRS may withdraw the filing the notice of federal tax lien under certain circumstances, but this does not extinguish the underlying IRS tax debt.

When a taxpayer has unpaid tax debts, the IRS may stop collection activity if the taxpayer seeks or enters into an installment agreement or offer in compromise. However, the IRS generally will not release a lien or withdraw a notice of federal tax lien simply because a taxpayer enters into an installment agreement or offer in compromise. See Offer In Compromise.

With respect to an installment agreement, the notice of federal tax lien is generally not withdrawn unless the taxpayer meets certain criteria and requests the IRS to withdraw the filing of the notice. And the lien is not released (i.e., the IRS claim against your property is extinguished) until the IRS debt is fully repaid.

With respect to an offer in compromise, once the offer is entered into by the IRS (i.e., IRS reviews and agrees with the offer), then the IRS will generally withdraw the notice of federal tax lien. However, the IRS will release the lien when the offer amount is paid, which could take 5 to 25 months to pay the full offer amount.

The potential options to challenge a lien or have the filing of a notice of federal tax lien withdrawn depend on where you are in the process. If you have received a letter from the IRS stating that they filed a notice of federal tax lien, please give me a call for a free consultation to determine how I can help you resolve your tax issues.

Additional Background Information

IRS Lien Process

There are a few steps in the lien process.

First, the IRS must assess a tax. The most common assessment is when you “self-assess” by filing a tax return. However, if you do not file a return, the IRS can file a Substitute for Return for you using data that it has on file (e.g., W-2, 1099’s). See Unfiled Tax Returns. Also, the IRS may assess an additional amount through an IRS examination. See IRS Examination.

Second, once a tax is assessed, the IRS must send you notice and demand for payment. The IRS can meet this requirement by sending you anyone of a number of different IRS notices.

Third, after the notice and demand is sent, you have 10 or 21 days to pay the tax depending on the size of the tax debt. If you do not pay the tax in this time period, then the IRS federal tax lien becomes into existence. This is sometimes called a “silent lien” because it exists despite the fact that most people other than you and the IRS know the debt exists.

Fourth, if your combined tax debts reach a certain threshold, then the IRS will file a Notice of Federal Tax Lien (“NFTL”) in local county courthouse where you live. By filing the lien in court, the IRS puts the world on notice of its claim against your assets. Filing of the Notice of Federal Tax Lien carries Collection Due Process rights. After you receive a letter notifying of the filing of the federal tax lien, then you only have 30 days to request a CDP hearing.

When Will the IRS Remove a Lien

When a taxpayer has unpaid tax debts, the IRS may stop collection activity if the taxpayer seeks or enters into an installment agreement or offer in compromise. See IRS Levy Relief. However, the IRS generally will not withdraw a filed tax lien until the debt is satisfied.

However, there are a handful of situations in which the IRS will voluntarily withdraw the lien:

  • Withdrawal of the NFTL would “facilitate collection of the tax liability”;
  • Taxpayer enters into an installment agreement and the agreement did not provide that the NFTL will not be withdrawn;
  • Filing the NFTL was “premature or otherwise not in accordance with administrative procedures”;
  • The IRS National Taxpayer Advocate determines that withdrawal would be in the best interest of the taxpayer and the Commissioner determines that the withdrawal is in the best interest of the government.

Generally, the most common situation in which a lien is removed is when the taxpayer is attempting to sell property attached by the lien (e.g., real estate) and the taxpayer plans on turning over the proceeds to the IRS. In this case, the taxpayer applies to have the tax lien discharged and the IRS will provide a conditional commitment to withdraw that lien once the IRS receives money equal to the IRS’s interest in the property.  See Form 14135.