If You Have An IRS Tax Lien – Avoid This Common Mistake Or You Could Regret It Forever!
By Steven A Leahy
Today I received an email from my friend David Hochberg, the mortgage specialist, asking questions about IRS Tax Liens. I checked my past blog posts, and did not find an article about IRS Tax Liens. So, I thought that I would correct that oversight.
One of the IRS’s collection tactics is filing a tax lien. An IRS tax lien is the government’s legal claim against a taxpayer’s property when a tax debt exists. The lien protects the government’s interest in all your property – what you own now, and what you will own in the future.
A lien automatically comes into existence if a taxpayer fails to pay taxes after receiving the first bill. To publish a lien the IRS files a Notice of Federal Tax Lien with the county where the taxpayer lives. The purpose of the tax lien is to alert creditors that the government has a legal right to your property. IRS tax liens have a detrimental impact on credit scores and limit the taxpayer’s ability to get credit. Taxpayers have a right to appeal the IRS tax lien, called a Collection Due Process hearing. But there are strict time limits to a right to appeal. So, if you receive a Notice of Federal Tax Lien, take action.
Once there is an IRS tax lien, there are several ways to get rid of the lien. The most obvious way to release a lien is to pay the tax debt in full. The IRS must release your tax lien within 30 days after the tax debt has been paid.
If a taxpayer can demonstrate that it is in the government’s best interest to reduce the impact of the tax lien on the taxpayer the IRS may Discharge the property, Subordinate the government’s interest to another creditor or withdraw the tax lien.
A discharge removes the lien from specific property. This option is useful for taxpayers seeking to sell property with a lien attached. If a taxpayer has an IRS tax lien and sells their home, the IRS tax lien remains on the property, unless the lien is paid in full or the IRS agrees to discharge the property from the IRS tax lien. The discharge removes the lien from that specific asset, while maintaining the lien on all other of the taxpayer’s property. This allows the property to pass to the buyers without the IRS tax lien attached. Without discharging the lien, the property is nearly impossible to sell.
Subordination of the lien is a process whereby the IRS allows a creditor to take a superior position over the IRS claim. Subordination is used when a taxpayer wants to refinance or obtain a loan using the property as collateral. Generally, lenders will not loan money on property when the IRS has a tax lien. The old adage: first in time, first in right applies here. If the taxpayer is seeking to borrow money, either through a refinance or a new loan, that will not pay the IRS in full, the IRS may agree to take a second position behind the new lender in order to allow the loan to come to fruition.
A “withdraw” removes the Notice of Federal Tax Lien from public record. The “withdraw,” however, does not release the tax lien or the taxpayer’s obligation to pay the debt. A taxpayer may convince the IRS to withdraw a Notice of Federal Tax Lien if:
The taxpayer’s tax obligation has been satisfied and the taxpayer remains in compliance for the past three years – that means all tax returns and estimated tax payments; or,
A taxpayer owes less than $25,000.00. Has an installment agreement in place with direct debit payments that have been on time for at least 3 consecutive payments, the installment agreement will full pay the IRS obligation and the taxpayer is in full compliance.
A tax lien remains on your credit report for seven to ten years, even after the taxes have been paid in full. However, since 2011, under the IRS Fresh Start Program, a taxpayer can remove the tax lien from their credit report, but it doesn’t happen automatically. The taxpayer must apply using IRS form 12277 “Application for Withdrawal of Filed Form 668 (Y), Notice of Federal Tax Lien.”
If you have an IRS tax lien and are looking to resolve your tax problems, you should find out what your options are. Before you do anything, you should give me a call. We can discuss your all your options. Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.