The IRS can file a Notice of Federal Tax Lien, which is a public notice to creditors that you owe taxes. Read more about the basics of a Tax Lien here. This will go on your credit report, come up if you try to get a loan, be seen by your employer if it does a credit search, and affect a sale of your house.
Pay the Tax Lien in Full
There are ways to get a tax lien removed. First, you can get the Lien release if you pay the amount due in full. You may have to get creative in order to do this. If you have available cash in your bank, it may be in your best interests to pay off the IRS rather than keep it in savings. Alternatively, there may be someone who will loan or gift you money to pay off the tax debt. Once you have paid the debt in full, the IRS has 30 days to release the lien.
Statute of Limitations
Another option that you will want to look into is to see when the statute of limitations will expire on the tax debt. The IRS has 10 years from the date the tax was assessed to collect from you. If it fails to do so within that time frame, the IRS debt will be extinguished. You will want to determine when the tax was assessed to see if you are close to the time the statute ends. If so, you may be able to stay in touch with the IRS to keep their collection efforts at a minimum until the statute closes. Then, once that happens, you request that the IRS remove its lien.
Offer in Compromise
If you have insufficient income to meet your expenses and no assets available to pay your tax debt, you may be eligible to make an offer in compromise. Once the offer is accepted by the IRS and you fulfill the payment arrangements you’ve offered, the IRS will remove the tax lien. The offer in compromise process typically takes six to nine months, which may not be a quick resolution to your tax lien issue.
Tax Lien Withdrawal
There are also ways to get a tax lien withdrawn. This is not the same as a removal of the lien as you still may have outstanding amounts due. Rather, the withdrawal lifts the lien while the collection process is either under review by the IRS or you are working on paying the amount off. One way to get a lien withdrawal is to enter into an installment payment arrangement with the IRS. You will be eligible for this type of withdrawal using the IRS’ Fresh Start Program. If you owe less than $50,000 of tax and you set up monthly payments using a direct withdrawal from your bank account, the IRS will remove the lien after you have made four of these payments. As long as you stay current with your installment payments, the lien will be removed. Eventually, the idea is that you will pay off the amount due. At that time, your lien will be formally removed, not just withdrawn.
Another way to get a lien withdrawn is if the IRS filed the Notice of Federal Tax Lien incorrectly. This rarely happens; however, the IRS does make mistakes. For example, if you can show the IRS sent the Notice to the wrong address where you would have no reason to have received the Notice and later you find out a lien has been filed against you, you can appeal to the IRS to remove the lien. However, if you do actually owe the tax due, the IRS can simply reissue its Notice of Federal Tax Lien correctly and you will be back to square one to work out other arrangements for paying off your tax debt.
One other option for withdrawing the tax lien is to convince the IRS that they would be in a better position if they withdrew the lien. You will need to show the IRS that if not for the lien you would be able to pay the taxes more quickly. An example might be that a tax lien is harming your ability to make money. For instance, if you own a business and have difficulty getting credit from vendors, it may help give vendors assurance of your credit worthiness if the tax lien was gone. In that case, you could argue that you would make more money if the lien was withdrawn, thereby allowing you to pay more towards your IRS debt. It is very difficult to get this relief and the facts and circumstances would need to highly weigh in your favor.
Tax Lien Discharge
Lastly, there is a way to get the lien discharged. This is only a temporary solution because it simply is a process that lifts the lien briefly in order to get financing to pay off your debt. For example, you would make this request if your bank is telling you that if you didn’t have the tax lien it could release equity to you with a loan. There is a formal application to request a discharge, which is found on IRS Form 14135. You will need to provide detailed information about how you will be getting financing. It is recommended that you make the request at least 45 days before your intended closing date allow for enough time for processing.
Please keep in mind that bankruptcy may not remove the tax lien. There are only certain circumstances in which you can have tax debt discharged in bankruptcy. Therefore, this is not a guaranteed way to resolve the issue.
A lien is a matter to take seriously. At the same time, if you are working on addressing your overdue tax debts and do not need to sell assets or get financing, you may simply continue on getting the tax paid before worrying about the tax lien. So, a priority should be made to resolve the underlying problem first. Then, the lien will be taken care of along with that.