What is a tax lien?
An IRS tax lien is a claim against a taxpayer’s property or person used as collateral for a tax debt. A tax lien is one of the aggressive collection actions of the IRS to fulfill an unpaid tax debt. It is attached to all property, and to all rights to property, such as accounts receivable, for business owners. The claim extends to property acquired after filing the tax lien as well. This is done to ensure funds made from the property are applied the IRS debt. An IRS tax lien will show on a taxpayer’s credit, as well as be public record for creditors, banks, and other financial institutions.
How will a tax lien affect my credit?
The IRS cautions that credit ratings have a chance of dropping once a lien is filed. It will be difficult to qualify for a loan, to buy a home or car, apply for a new credit card, or even sign a lease. A tax lien can also lead to a taxpayer being denied security clearance if they work for the government or have government contracts, as well as losing their license in certain fields
How can you remove a tax lien? There are a few ways to remove a tax lien if you know where to start.
How can a tax lien be removed?
In most cases, it is only after a taxpayer has fulfilled their obligation of repayment will the IRS release the tax lien against them. Fortunately, there are a number of ways a taxpayer can repay their tax debt, including:
- Direct Debit Installment Agreement
- Streamlined Installment Agreement
- Partial Payment Installment Agreement
- Offer in Compromise
Other ways to have an IRS lien removed depends on a taxpayer’s circumstances. A taxpayer can apply for a Discharge of a Federal Tax Lien if one of the following applies to them:
- A taxpayer entered into a Streamlined Installment Agreement.
- The IRS lien was filed incorrectly.
- A taxpayer can prove that by withdrawing the IRS lien they will pay the debt faster.
- A taxpayer can prove that the withdrawal is in the government’s best interest.
You can appeal the lien
You can get the IRS to remove Notice of Federal Tax Lien if you can show that the IRS was in the wrong. A lien can be removed with tax resolution on appeal if:
- The tax debt has already been paid in full.
- The lien was filed in error.
- The lien was filed in error and the IRS made a processing error with your return.
- The IRS did not follow proper procedures.
- You were going through bankruptcy when the lien was filed.
- You weren’t given a chance to dispute the amount assessed by the IRS.
- You wish to make spousal defenses by claiming that your spouse should be liable for the lien.
- You want to discuss collection options, like through the Fresh Start Initiative.
- The statute of limitations of 10 years on collecting the tax debt has passed.
On the notice of the lien, you are given the option to request a Collection Due Process hearing with the Office of Appeals. The request for an appeal must be made within 30 days after fifth day of the lien being filed, or by the date indicated on the notice.
A new tax lien policy allowing for “withdrawal” gives hope to many struggling taxpayers. Withdrawal removes the lien as if it was never there, and occurs when the taxpayer’s lien is paid off, or it’s proven that the lien was filed falsely. Withdrawal is also possible if you qualify for the Fresh Start Initiative, have entered a direct debit agreement, and your balance is lower than $25,000.
I’m trying to refinance my home, and have a lien on it, what are my options?
Lien subordination is an option. This allows another creditor to, move ahead of the line, and “subordinate” (or make the IRS interest in your property secondary). The IRS will only allow this option, if it’ll help them get paid more or sooner. For example: if you’re trying to refinance your home, the IRS will allow a lender to go above the lien and refinance in exchange for a cut of the proceeds. This process is complicated, though, and professional assistance is always recommended.
How to remove a lien from your credit reports
Once you have the tax lien removed, either through withdrawal or release, it’s time to contact the three credit agencies to make sure they’ve updated your reports.
- Once you have received a Notification of Withdrawal or Release from the IRS, get a copy of your credit report (AnnualCreditReport.com) to find the status of the lien. Often, the bureaus will automatically update the lien on your report with no work on your part.
- If it has not been updated, contact each agency to dispute the lien.
- The agencies will then contact your local courthouse to establish that your information is accurate. Then each agency will alert you on how each dispute turned out, and if the lien was removed or not.
- Experian, in particular, will send instructions with what you should send to verify that the lien was released. With those documents, they should be able to update the status of the lien.
Tax liens can slash your credit score, and will tarnish your credit history for years to come. Ensure that any liens are updated or removed from your credit report as soon as possible.
How to avoid a property tax lien
Pay your taxes in full and on time! File your taxes before the IRS has the time, or the reason, to send an IRS rep out to file a tax lien against you at your local courthouse. The damage a lien could do to your credit report is serious, so it’s best to avoid having one filed in the first place.
Easier said than done, right? Well, there are a few ways you can prevent a tax lien if you can’t pay your taxes on time.
- DO NOT ignore or misplace any notices or letters the IRS sends.
- DO keep track of your tax status, and keep all of your records in a safe, secure place.
- DO respond quickly to any notices, either by phone, mail or fax. Wait too long and the IRS might feel you are trying to avoid paying the debt, and file a lien.
- DO contact the IRS immediately if you believe the tax lien was filed in error.
- DO arrange for an extension if you cannot pay your tax debt by April 15th.
- DO set up an installment agreement with the IRS if you cannot pay the debt in one full payment. If the IRS knows that you have negotiated an installment plan, they will not file a lien against you. If you fail to pay on schedule, you’ll lose your credibility with the IRS and they’ll file a lien against you immediately.
- DO contact a professional tax attorney for tax resolution if you are wary of working directly with the IRS. They can explain your options, your next steps, and help you set up any payment plans or extensions with the IRS. They can also help you file an appeal if a lien was filed erroneously.
If you are currently being levied or your wages are being garnished, then you must take immediate action, the IRS has you in it’s sights, it won’t foget about you. In fact, it will only increase the pressure to collect from you!
Every tax case is different, but EVERY case has a solution. Offer in Compromise and CNC status are two of several programs, that can help settle your tax debt, and not lose your assets. We can help you figure out the best program for your specific situation, click below for a free consultation with a professional that can guide you to the correct solution.