Effectively Dealing with a Federal Tax Lien


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When you owe the IRS money, you set yourself up for a financial debacle that could follow you for months or years unless you pay off your tax debt in full. Failing to pay your delinquent taxes could lead to the IRS putting a lien on your money and assets.
A lien can make buying or selling your property or even securing credit difficult if not impossible. You can protect your finances and avoid undue hardship by learning how to handle an IRS lien or avoid one entirely.

What is an IRS Lien?

An IRS lien occurs when you owe the IRS money and you fail to take the proper steps to pay it off or make payments on it. This action essentially states the IRS' intention to levy your monetary assets and property to pay off what you owe the federal government.

When the IRS puts a lien against your assets and property, it also publishes this notice in your local newspapers, alerting the public to your debt and the government's intention to liquidate your property. At this point, you have a limited number of options available to you to get rid of the lien and to settle your debt to the IRS' satisfaction.

Getting Rid of the IRS Lien

So what steps can you take at that point to get rid of the embarrassing and potentially devastating IRS lien? Your first and most prudent option would be to pay off what you owe.

You should pay off the debt in full if you have the monetary capability to do so. If not, you should set up a payment arrangement, also called an installment agreement, to pay off your debt little by little each month.

Your payments will be based on what you earn each month so that they are manageable and affordable. By law, the IRS can collect on the debt and these payments for 10 years or until your debt is paid off in full, whichever comes first.

If you cannot pay in full or satisfy a payment arrangement, you can still get rid of the lien by other means. For example, you could pursue a Discharge of Property, which effectively removes the lien from the property. However, to be eligible for this option, you must meet the outlined criteria listed in the IRS Publication 783.

You also may request a subordination, which would put other creditors ahead of the IRS in claiming the property. The IRS may agree to a subordination if it would otherwise have to secure the other creditors' cooperation in liquidating the asset. Even with a subordination, however, you are still legally obligated to pay off the rest of your debt in full.

Finally, you could pursue an option called a withdrawal. A withdrawal removes the IRS as a competing creditor for the property. As with a subordination, you also are still responsible for the tax debt.

You may be eligible for a withdrawal if you have entered a Direct Debit installment agreement with the IRS and:

  • Are an individual taxpayer, business owner with an income tax liability, or an out-of-business entity with a legitimate tax debt
  • Owe less than $25,000 to the IRS
  • Can pay off your debt within six months of setting up the Direct Debit agreement
  • Compliant with current and other previous filed tax returns and payment arrangements
  • Have made at least three prior Direct Debit payments
  • Not in default of your current or previous Direct Debit arrangement

These options give the chance to have the lien against you discharged. It also prevents the IRS from reporting the lien to the major credit bureaus, which could substantially lower your credit score.

Your money and assets are fair game for claiming when you owe a delinquent tax debt. You can secure your finances and property by knowing how to avoid and handle an IRS tax lien.

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