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The Power of IRS Liens

Lamarre Law Group, P.A. Sept. 5, 2022

If you have unpaid federal taxes, you may have received a Notice of Federal Tax Lien (NFTL) from the IRS alerting you to the federal tax lien that the IRS has filed against you. The term “lien” appears in a variety of contexts, but what exactly is a federal tax lien?

A federal tax lien is a legal claim against a taxpayer’s current or future assets. Assets affected by the lien include real estate, personal property, and financial assets. If a tax lien appears on your credit report, it would be prudent to contact your local and state taxing authorities to determine whether a lien was filed for unpaid local taxes. 

The IRS will attempt to collect the tax balances before filing the federal tax lien. If a taxpayer does not make significant steps to resolve the outstanding tax balance, the IRS will file the federal tax lien. Sometimes, the lien will remain in place even if the taxpayer has entered a formal agreement with the IRS to resolve unpaid taxes.

A federal tax lien primarily affects taxpayers when they attempt to buy or sell a property. For example, suppose a taxpayer sells a property that has a lien attached to it. In that case, the IRS will receive the sales proceeds to satisfy the unpaid taxes before the taxpayer receives any of the money. This can severely hinder, or entirely prevent the purchase or sale process.

The quickest way to release a lien is to pay the outstanding balance in full. The IRS will release the lien within 30 days of receiving the payment. There are a few ways to minimize the impact of the lien.

A taxpayer can request a lien discharge for a specific property. This is common when a taxpayer is selling property to which the lien is attached. A discharge allows the taxpayer to sell the property free of the lien while the IRS receives proceeds. For other properties, keep in mind that the lien stays in effect.

Another remedy is to request that the IRS subordinate their interest to another creditor. The tax lien allows the IRS to have a senior interest and priority over a lender. With subordination, the IRS allows the new creditor to take priority over them. This helps facilitate the loan process by allowing lenders to decrease their overall risk while securing the IRS’ interest.

A taxpayer can also request a withdrawal with the IRS withdrawing the NFTL from public record. There are several ways to qualify for a withdrawal. A taxpayer can enter a direct debit installment agreement that meets additional requirements. These are typically 60-month agreements that fully pay the balance. Another way to request the withdrawal is to show the IRS that withdrawal will facilitate the tax collection. A taxpayer may also receive a withdrawal if it can be shown that the IRS did not follow proper procedures when filing the NFTL.

Federal tax liens are a complicated issue that can cause many problems if not handled properly. Unfortunately, many taxpayers are dealing with the negative impacts of federal tax liens and don’t know how to proceed. The experienced attorneys at Lamarre Law Group can guide you through the process of doing what is best for your unique situation to get you back on track. Call us today for a free consultation.