Removing a Federal Tax Lien

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The IRS may generally file a Federal Tax Lien against your personal and real property to secure the government’s interest in your outstanding tax debt so it has priority over other creditors. If you receive a notice of federal tax lien, how can you get it removed? Outside paying off your tax debt in full or having the statute of limitations expire, removing a federal tax lien is a difficult task. Hiring a qualified tax professional to advise you and work on your behalf is almost always necessary if you cannot pay the debt in full, or if you cannot post a bond guaranteeing you will pay the debt in full. By law, a filed notice of tax lien can be removed if: the notice of federal tax lien was filed too early or violated IRS procedures, you enter into an installment agreement to pay the debt and the agreement provides for removal of the federal tax lien, removing the federal tax lien will speed up collection of the liability by the IRS, or removal of the federal tax lien would be in the best interest of both the taxpayer and the government.

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The law requires the IRS to notify a taxpayer in writing not more than five business days after the filing of a lien. The IRS may give a taxpayer the notice of federal tax lien in person, leave it at the taxpayer’s residence or usual place of business, or send it by certified or registered mail to the taxpayer’s last known address. A taxpayer has the right to appeal a federal tax lien and can do so by requesting a Collection Due Process hearing by filing Form 12153 with the office listed on the notice of federal tax lien. A request for Collection Due Process Hearing must be postmarked by the date shown on the notice of federal tax lien. Some of the issues that can be discussed at the hearing include: the tax liability was paid in full before the IRS filed the lien; the IRS assessed the tax and filed the lien when the taxpayer was in a bankruptcy and subject to the automatic stay during bankruptcy; the IRS made a procedural error in an assessment; the time to collect the tax (called the statute of limitations) expired before the IRS filed the lien; no prior opportunity to dispute the tax owed was given to the taxpayer; there are alternative resolutions to satisfying the outstanding tax debt; or the taxpayer wishes to claim an innocent spouse defense.

If removal of a federal tax lien cannot be accomplished, at times the government will agree to a lien subordination which could allow you to get a second mortgage or refinance your real property in order to pay your outstanding tax bill. When the outstanding tax bill is paid in full, the government will remove the federal tax lien. There is no standard form available for an application for a Certificate of Subordination of Federal tax lien. A taxpayer must prepare the request in the form of a typed letter and included supporting documentation. Information on this process is found in IRS publication 784. Not all lenders will consider a mortgage that includes lien subordination and the process is complicated, consulting a qualified tax professional to help remove a federal tax lien is recommended.

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