Fact Sheet: IRS Lien

A federal tax lien is the government's legal claim against your property when you neglect to pay your tax debt. It's a lien that protects the government's interest in all of your property, including personal property, real estate and financial assets. A federal tax lien is placed after the IRS sends a taxpayer a Notice and Demand for Payment, and the taxpayer either refuses or neglects to fully pay the debt in time.

Overview of an IRS Lien

IRS liens affect taxpayers in a variety of ways. The lien attaches to all assets, including securities, vehicles, property and to future assets acquired. Once the IRS has filed a Notice of Federal Tax Lien, it may also limit the ability to attain credit. For businesses, the lien attaches to all business property and accounts receivable. Even if a taxpayer files for bankruptcy, the Notice of Federal Tax Lien generally continues.

IRS Pre-Qualifier to Reduce the Impact of a Lien

While paying off tax debt is the best way to get rid of an IRS lien, there are other options for reducing the impact of the lien.

• Discharge of Property – A discharge removes the lien from specific property, but there are several IRS provisions to determine eligibility. After filling out IRS Form 14135, IRS advisory staff will review all of the information to determine whether a certificate of discharge should be issued. A discharge of property may be issued when the value of the taxpayer's property is equal to at least twice the amount of the federal tax liability, tax liability is partially satisfied, the property has no value or the property is sold with proceeds paid to satisfy the tax lien.
• Subordination – Subordination puts junior creditors ahead of the IRS for specific property. It does not remove the federal tax lien, but it does allows for other creditors to get their monies first. The IRS will do this when it is necessary to attain other creditor's approval for a sale of the property. For example, a bank holds a lien with mortgaged properties. The IRS subordinates its lien, and the bank gets paid first. Then, the IRS gets the remainder.
• Withdrawal – Withdrawal removes the public Notice of Federal Tax Lien and confirms that the IRS will not compete with other creditors for the property. Taxpayers who are approved for a Direct Installment Plan Agreement are typically eligible for a withdrawal. A withdrawal does not eliminate tax debt, and taxpayers are still liable for the tax amount due. IRS Form 668(Y) needs to be filed for a withdrawal.

A Closer Look at IRS Liens

Getting rid of an IRS lien is a complicated process. Seeking the help of an independent tax attorney or experienced tax consultant is a wise move to ensure that it's in your best interests. If you receive a Notice of Federal Tax Lien, don't ignore it. Contact the IRS immediately. A mistake may have been made or there may be mitigating circumstances in order to appeal the tax lien.