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Tax Lien

Tax Lien

The IRS can stake a legal claim on a taxpayer’s property if back-taxes are owed. This legal claim is called a tax lien, and it applies to all the taxpayer’s properties for the amount of the tax debt. First, the IRS assesses the debt and sends a demand for payment. The IRS files a federal tax lien right away if no payment is received by the deadline on the notice. The taxpayer is notified of the tax lien via correspondence, which is commonly delivered by U.S. Mail. Taxpayers have rights; Tax Champions can help you understand your options.

A Notice of Federal Tax Lien

The notice is called a Notice of Federal Tax Lien and it’s filed with the local recording office. This document may list up to 15 different tax liabilities that have been assessed by the IRS. Other creditors also have the legal right to put a lien on the taxpayer’s properties. Although, the law requires that tax debt is settled first before debt owed to other creditors

 

When the IRS files Notice of Federal Tax Lien, it puts other creditors on notice that the tax debt takes priority. While there are exceptions to this rule, most creditors understand that back-tax debt must be satisfied first. Funds that result from a property transaction must be forwarded to the Treasury to resolve the debt because of this.

  

Furthermore, keep in mind that a tax lien applies to property that is owned at the time the lien is filed. It also applies to property that is acquired afterwards.  

Statute of Limitations on a Federal Tax Lien

The IRS can attempt to collect the back-tax debt for 10 years after the date the tax was assessed. A tax lien can be filed at any time, as long as it’s within 10 years of the assessment date. Most taxpayers can expect the IRS to stop trying to collect the debt after this time period expires. 

 

The IRS files a Notice of Federal Tax Lien Refile on a taxpayer in cases that call for collection past the 10-year statute. The notice certainly needs to be filed promptly in order to maintain its priority. The Notice of Federal Tax Lien lists the last day for refiling for each tax liability. The 10-year statute begins counting down 30 days after the date the tax was assessed. Refiling deadlines take place 10 years after the original statute expiration date. 

Releasing a Federal Tax Lien

The IRS issues a Certificate of Release of the Federal Tax Lien if one of the following occurs:  

  • Payment for the debt is made in full, including tax, penalties,interest and other fees,
  • The statute expires, or
  • The IRS accepts a bond guaranteeing the payment of the debt.

The taxpayer also pays all fees charged by the recording office to release the liens. 

In most cases, the IRS doesn’t need to issue a Certificate of Release of the Federal Tax Lien. This is because the document has a built-in method of self-release. If no refiling of the tax lien occurs and the statute expires, the Notice of Federal Tax Lien serves as the release document.  

Taxpayers can find self-releasing language under the name and address on the Notice of Federal Tax Lien. Each tax liability has a separate date for self-release. Most noteworthy, the tax lien will only be released once the entirety of the tax debt is resolved or the statute expires. If a refiling is submitted to the recording office before it expires, the lien will not be released. 

Partial Tax Lien Releases

Notices of Federal Tax Lien aren’t limited to one taxpayer. Many notices list more than one name. The IRS explains, “Occasionally, one of the persons shown on the notice of lien resolves all or part of their liability, but the other person(s) shown on the notice of lien still owes the liability.” Certificates of Release of Federal Tax Liens may be issued with an exemption in these cases. They’re identified as “Partial,” which indicates that only the taxpayer who resolved their share of the debt is released. 

 

The IRS also notes, “Occasionally, some, but not all, of the liabilities shown on the notice of lien are satisfied, but the remainder of the liabilities are still owed. Although the IRS normally waits for all the liabilities on the notice of lien to be satisfied before releasing the lien, there are circumstances where Certificate of Release of Federal Tax Lien annotated “Partial” may be issued only for the liabilities satisfied.” 

Federal Tax Lien Releases Aren't Always Permanent

Once in a whilethe IRS makes a mistake when filing a Certificate of Release of Federal Tax Lien. The IRS offers the following examples: 

  • A release is issued in connection with a collateral agreement associated with an offer-in-compromise that has been breached, or 
  • A notice of lien isn’t filed in a timely manner,thus allowing it to inadvertently self-release. 

The IRS reverses a release when an error such as these occur. They accomplish this by filing a Revocation of Certificate of Release of Federal Tax Lien with the recording office.

In these cases, the IRS commonly files a new Notice of Federal Tax Lien. The new tax lien becomes effective as of the new filing date, in contrast to the original filing date. This process applies to all liens filed on the taxpayer’s properties across the country. Therefore, taxpayers have challenges when applying for real estate credit.

Subordinating a Federal Tax Lien

It’s certainly difficult to secure credit on a property that is encumbered by a tax lien. Financial resources hesitate to extend credit if they’re not guaranteed first priority in the next transaction. That's because their investment is more at risk. Many times, the IRS will agree to subordinate the lien. That means the tax lien will not have priority over a new creditor. As a result, the loan can be executed and the debt  can be resolved.

 

Consider the example of a taxpayer trying to secure a second mortgage. This taxpayer intends to use cash that results from the second mortgage to resolve his or her debt. The taxpayer should notify the IRS of this intention when requesting a subordination of the tax lien. If the IRS knows the taxpayer is cashing out equity to resolve the tax debt, they’re more likely to agree.

Getting Help With a Federal Tax Lien

Although the IRS provides instructions for releasing or subordinating a lien, it can be a complex and tedious task. Tax Champions is a full-service tax relief firm with over 35 years of experience. We’ll work with the IRS on your behalf to permanently remove the tax lien. We’ll also negotiate your tax debt and arrange an affordable payment plan. Our goal is to bring your case into compliance with the IRS for your peace of mind. 

Our clients’ satisfaction is important to us. We strive to exceed their expectations, as indicated by our A+ rating at the Better Business Bureau. We have no customer complaints at the Better Business Bureau, Board of Accountancy nor the IRS. Above all, want our clients to feel great about their decision to hire us.

Give us a call today at 800.518.8964 any time during the day and evening, seven days a week. Our knowledgeable and friendly staff is available to take your call 365 days a year. We’re happy to provide a free personal case review to determine the best program to suit your needs. There’s no obligation to hire our firm for this free review. 

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Contact Tax Champions today to gain some clarity on your options. Don't waste another moment. You’ll sleep better tonight knowing your case is in capable hands. We look forward to hearing from you.  

Sources

[1] 5.12.8 Notice of Lien Refiling | Internal Revenue Service. (2017, September 10). Retrieved from //www.irs.gov/irm/part5/irm_05-012-008 

 

[2] 5.17.2 Federal Tax Liens | Internal Revenue Service. (2019, March 12). Retrieved from //www.irs.gov/irm/part5/irm_05-017-002 

 

[3] Taxchampions | Better Business Bureau® Profile. (n.d.). Retrieved from //www.bbb.org/us/ca/ventura/profile/tax-consultant/taxchampions-1236-92012281 

 

[4] Understanding a Federal Tax Lien. (2019, May 30). Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/understanding-a-federal-tax-lien 

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Walter Wotman, CPA

Founder & Managing Partner

Walter Wotman, CPA is the author of "Tax Champions Guide to Tax Resolution." Amazon #1 Best Seller in the Personal Finance category. He is one of America's most experienced tax negotiators with over 35 years of experience helping thousands of clients settle difficult back tax issues.

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