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Tax Help FAQs: IRS Tax Liens

What is an IRS Tax Lien?

• A tax lien is a charge or an encumberance that a person has on the property of another as a security for a debt or other obligation
• An IRS tax lien does not divest the taxpayer of his or her property or the rights to transfer property
  
  What makes an IRS Lien Valid?
  
  
• There must be a valid assessment
• The IRS must make a demand for payment
• Taxpayer must have either neglected or refused to pay after demand
  
  What Property does the General IRS Tax Lien Attach?
  
  
• The federal tax lien attaches to all property belonging to the taxpayer on the date of the assessment
• The Lien also attaches to after- acquired property
• The Lien is an ongoing, virtually living thing
• It continues in existence until the liability is satisfied or becomes unenforceable
  
  Does a Tax Lien make the government a secured creditor?
  
  Once a tax lien exists...
  
  
• The IRS must give the taxpayer a 30-day notice before levying upon and seizing the taxpayer's assets
• Once the tax lien exists, the government becomes the taxpayer's secured creditor
• The security is the tax lien
• The government is entitled to payment before general, unsecured creditors
  
  Does the IRS Tax Lien interfere with the transfer of property?
  
  
• A tax lien can severely hurt the taxpayer's credit standing
• Another menace of the tax lien is that it interferes with the transfer of any property... to which a paper title is necessary
• This includes real estate and personal property subject to recoreded security agreements or UCC filings
• The tax lien either prevents the property from being transferred or follows the transferred property...
• Whether that transfer is for consideration, gratuitous or even fraudulent
• A valid retroactive disclaimer under state law of the interest of the beneficiary under a will does not prevent the tax lien form attaching to the disclaimed property
  
  What is the difference between a tax lien and the discharge of property subject to a lien?
  
  
• A release of a tax lien completely extinguishes the lien
• A discharge operates to discharge specific property to which the lien has attached.
  
  

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  Notice of Federal Tax Lien
  
  Liens give us a legal claim to your property as security or payment for your tax debt. A Notice of Federal Tax Lien may be filed only after:
  
  The IRS assess the liability;
  
  The IRS send you a Notice and Demand for Payment - a bill that tells you how much you owe in taxes; and
  
  You neglect or refuse to fully pay the debt within 10 days after we notify you about it.
  
  Once these requirements are met, a lien is created for the amount of your tax debt. By filing notice of this lien, your creditors are publicly notified that IRS have a claim against all your property, including property you acquire after the lien is filed. This notice is used by courts to establish priority in certain situations, such as bankruptcy proceedings or sales of real estate.
  
  The lien attaches to all your property (such as your house or car) and to all your rights to property (such as your accounts receivable, if you are a business).
  
  Once a lien is filed, your credit rating may be harmed. You may not be able to get a loan to buy a house or a car, get a new credit card, or sign a lease. Therefore it is important that you work to resolve your tax liability as as quickly as possible, before lien filing becomes necessary.
  
  Releasing an IRS Tax Lien
  
  The IRS will issue a Release of the Notice of Federal Tax Lien:
  
  Within 30 days after you satisfy the tax due (including interest and other additions) by paying the debt or by having it adjusted, or
  
  Within 30 days after IRS accept a bond that you submit, guaranteeing payment of the debt.
  
  In addition, you must pay all fees that a state or other jurisdiction charges to file and release the lien. These fees will be added to the amount you owe. Refer to Publication 1450, Request for Release of Federal Tax Lien.
  
  Usually 10 years after a tax is assessed, a lien releases automatically if the IRS have not filed it again. If the IRS knowingly or negligently do not release a Notice of Federal Tax Lien when it should be released, you may sue the federal government, but not IRS employees, for damages.
  
  Payoff Amount
  
  The full amount of your lien will remain a matter of public record until it is paid in full. However, at any time, you may request an updated lien payoff amount to show the remaining balance due. An IRS employee (either over the toll-free customer service telephone line, or at a walk-in service site, or at your local IRS' lien desk) can issue you a letter with the current amount due in order to release a lien.
  
  Applying for a Discharge of a Federal Tax Lien
  
  If you are giving up ownership of property, such as when you sell your home, you may apply for a Certificate of Discharge. Each application for a discharge of a tax lien releases the effects of the lien against one piece of property. Note that when certain conditions exist, a third party may also request a Certificate of Discharge. If you're selling your primary residence, you may apply for a taxpayer relocation expense allowance. Certain conditions and limitations apply. Refer to Publication 783, Instructions on How to Apply for a Certificate of Discharge of Property from the Federal Tax Lien.
  
  Making the IRS Tax Lien Secondary to Another Lien
  
  In some cases, a federal tax lien can be made secondary to another lien. That process is called subordination. Refer to Publication 784, How to Prepare Application for Certificate of Subordination of Federal Tax Lien.
  
  Withdrawing IRS Tax Liens
  
  By law, a filed notice of tax lien can be withdrawn if:
  
  
• The notice was filed too soon or not according to IRS procedures,
• You entered into an installment agreement to pay the debt on the notice of lien (unless the agreement provides otherwise),
• Withdrawal will speed collecting the tax, or
• Withdrawal would be in your best interest (as determined by the Taxpayer Advocate), and in the best interest of the government.
• The IRS will give you a copy of the withdrawal, and if you write to us, the IRS will send a copy to other institutions you name.