How to Resolve a Tax Lien

You’ve just learned the Internal Revenue Service (IRS) is placing a lien on your property. This may sound scary and overwhelming, particularly if you’re not quite sure of the implications of a federal tax lien. But rest assured, there are several ways to resolve it.

If you’re facing an IRS tax lien, it’s a good idea to speak with a tax attorney. They can help you understand your rights and options. They can also help you pursue the course of action that makes the most sense for you.

In this article, we’ll review some of the different methods for resolving tax liens and the ways an attorney might be valuable for you at this time.

But first, let’s make sure we understand what a federal tax lien is.

Federal Tax Liens

A federal tax lien, or IRS tax lien, is the government's legal claim against your property when you fail to pay a tax debt. IRS tax liens protect the federal government's interest in all your property. This can include real estate, personal property, bank accounts, and much more.

Tax liens are most commonly associated with income tax, but they can also arise from other types of unpaid taxes. Being self-employed may also increase the likelihood of encountering federal tax liens because of the unique tax responsibilities that come with self-employment.

Liens v. Levies

It’s important to note that a tax lien is different from a tax levy. A lien is a claim on your property. But a levy is when the government actually takes your property to pay the tax debt, such as wage garnishment.

How Does a Federal Tax Lien Occur?

A federal tax lien doesn't just appear out of nowhere. It happens in several steps:

• Assessment of liability: The IRS reviews your tax returns and assesses your tax liability. This means they determine how much you owe.
• Notice and demand for payment: The IRS then sends you a tax bill explaining how much you owe. This is called a Notice and Demand for Payment.
• Failure to pay: If you neglect or refuse to pay the debt in time, the IRS can file a public Notice of Federal Tax Lien. This alerts creditors that the government has a legal right to your property.

You’ll want to resolve your federal tax lien as soon as possible. This is because it can have several negative effects on your livelihood.

Why Resolve an IRS Tax Lien?

An IRS tax lien shows up on your credit report. So not only will it impact your credit score, but it can also make it harder to get loans, credit cards, or even rent an apartment.

A tax lien also makes it harder for you to sell your property. For example, if you try to sell your house while there’s a federal tax lien on your property, the government will get paid from the proceeds of the sale before you get any money.

You might also face employment-related issues with a tax lien. Some jobs, especially in finance or government, might be harder to get or keep with a tax lien.

If you own a business, a tax lien can interfere with your ability to get loans or credit to keep your business running.

So, it’s in your best interest to resolve a federal tax lien as soon as possible.

Ways To Resolve a Federal Tax Lien

Resolving a tax lien can take many forms. Depending on your circumstances, some options may be more viable than others.

Payment in Full

The most straightforward way to resolve a tax lien is to pay off the entire amount you owe. Once you've paid the full amount, the IRS will release the lien within 30 days. This means they'll remove their claim on your property.

Installment Agreement

If you can't pay the full amount at once, you might be able to set up a payment plan with the IRS. This payment option is called an installment agreement, where you agree to pay a certain amount each month until the debt is paid off. In some cases, the IRS might agree to withdraw the lien if you set up a direct debit installment agreement.

Offer in Compromise

An offer in compromise (OIC) is when you offer to pay less than the full amount you owe. The IRS might accept this if it believes it's the most they can expect to collect from you in a reasonable time. If your offer is accepted and you pay the agreed amount, the IRS will release the lien.

Statute of Limitations

Tax liens have a time limit, usually ten years from the date the tax was assessed. If this time passes and you haven't paid, the lien will expire. However, this is a long time to wait and can cause serious problems, so it's usually not the best option.

Subordination

In some cases, you can request lien subordination. Subordination doesn't remove a lien, but it allows other creditors to move ahead of the IRS in priority. This can be helpful if you're trying to get a loan to pay off your tax debt.

Appeals

If you believe the lien is unfair or incorrect, you will likely want to appeal it. You can request a collection due process hearing with the IRS Office of Appeals.

To fully understand which of these may be available to you, you’ll want to discuss your specifics with a qualified tax attorney.

How a Tax Attorney Can Help

A trusted advisor who’s experienced in tax law and negotiating with the IRS can be your most valuable ally at this time. You can share your circumstances with them confidentially so they can explain the tax relief options that may be available to you.

Attorney-Client Privilege

Your communications with a tax attorney are privileged, which means you can enjoy a higher level of confidentiality than with other tax professionals like certified public accountants (CPAs).

Protecting Your Rights

The IRS must follow certain rules when dealing with you, the taxpayer. A tax attorney knows your rights and can identify when the IRS is overstepping its bounds or treating you unfairly.

Appeals

An experienced tax attorney can check for IRS errors and other bases for an appeal. If there’s an opportunity to challenge the lien for unpaid taxes, they can also represent you.

Lien Withdrawal

In some cases, a strong tax attorney may be able to help you with a lien withdrawal. If the IRS has made a lien error, a qualified tax attorney can help you understand if you qualify for this option.

A lien withdrawal will remove the Notice of Federal Tax Lien from the public record as if the lien was never filed. This can improve your credit score and make it easier for you to work with lenders.

Negotiations

Tax attorneys are skilled at negotiating with the IRS. They may be able to reduce or eliminate your tax debt altogether. Under certain circumstances, they can also negotiate a more favorable payment plan in your installment agreement.

Alternatively, they can help you secure an OIC. This is a complex process, but it might be your best course of action.

Discharge

In some cases, your attorney can help you apply for something called a discharge of property. This is where you request the IRS remove the lien from specific property. This can include personal or real property.

Discharge won’t get rid of the tax debt. But it can free up your property for sale or refinancing so that you can. A solid tax attorney can help you present the most compelling arguments to the IRS if discharge is a good option for you.

Lien Release

If you've paid your taxes or reached an agreement with the IRS, a tax attorney can help make sure the lien is properly removed from your credit report and public records.

Your tax attorney won’t just help you resolve your IRS tax lien. They can also advise you on how to avoid issues in the future.

Finding the Right Attorney

Whatever you do, don’t ignore the lien. Your best course of action is to contact a qualified tax attorney sooner rather than later. They can help you figure out your next steps to resolving your federal tax lien.

Although learning about your lien may be overwhelming, identifying the right lawyer to guide you through the process of addressing it doesn’t have to be.

Findlaw’s directory of dedicated tax attorneys can help you get started. Just click on your state to view contact information and reviews of tax law experts in your area. You can also narrow your search results by city if you prefer.

A trusted advocate can help ensure you’re making informed decisions at this consequential time.