How to Get Rid of a Tax Lien

If you owe back taxes and fail to pay or negotiate a payment plan, the IRS or your state government may place a lien on your assets. A lien is a legal claim on your property to satisfy your debt, and it becomes part of the public record. It could affect your credit and financial standing.

Removing a tax lien as soon as possible is crucial to avoid these negative effects. Keep reading because we’ll explore the potential impacts of a tax lien and provide steps to remove it.

Table of Contents

1. How to remove a tax lien
2. How does a tax lien affect you?
3. How long does it take to remove a federal tax lien?
4. Can I remove a tax lien from some of my property?
5. How to avoid a tax lien in the future

How to remove a tax lien

Once a tax lien is placed, you have several options to remove it:

Option	Best for
File an appeal	Those who can prove the lien was wrongfully issued
Pay your tax bill	Those who can completely pay off their tax debt
Set up an IRS payment plan	Those who can manage monthly payments
Offer in compromise	Those who would face financial hardship if forced to pay the full amount owed
File for bankruptcy	Last resort

File an appeal

• What it is: Filing an appeal involves contesting the lien if you believe it was filed in error.
• Best for: This is suitable for those who can prove the lien was wrongfully issued.

Here are the steps you can take.

1. Determine eligibility: Assess whether you’re eligible to appeal with the IRS or your state government.
2. Submit your protest: Use the IRS Collection Appeals Program (CAP) to submit your protest. Access the program details and submission portal here.
3. Choose representation: Decide whether to represent yourself or to hire an attorney, CPA, or other qualified professional.
4. Seek low-income assistance: If you qualify as a low-income taxpayer, consider representation through a low-income taxpayer clinic, which may be free or low-cost.

Pay your tax bill

• What it is: Paying your tax bill in full to settle the debt.
• Best for: This is ideal for those who can completely pay off their tax debt.

Here’s what you can do.

1. Review your bill: Confirm the validity of your delinquent tax bill. Fees and interest accrue from the original due date.
2. Make the payment: Pay the full amount owed to remove the lien. The IRS typically releases the levy within 30 days after payment.

Set up an IRS payment plan

• What it is: An IRS payment plan allows you to pay your tax debt over time.
• Who it’s best for: This is suitable for those who cannot fully pay their tax debt but can manage monthly payments.

Take the following steps to set up a plan.

1. Evaluate your situation: Determine whether you need a short-term (180 days or less) or long-term installment agreement.
2. Understand your options: Review the types of IRS payment plans available.
3. Consider plan costs: Be aware of setup fees and that penalties and interest will continue to accrue.
4. Apply for a payment plan: Apply online (if eligible), by mail, by phone, or in person.
5. Avoid or withdraw a lien: Establishing a payment plan can prevent a lien or enable withdrawal of a lien.

Offer in compromise

• What it is: An offer in compromise (OIC) allows you to settle your tax debt for less than the full amount owed.
• Best for: This is best for those who cannot pay their tax debt in full and would face financial hardship if required to do so.

Here are the steps you can take.

1. Assess your eligibility: Use the IRS’s online tool to check whether you qualify.
2. Understand the process: The IRS evaluates OICs based on income, expenses, assets, and repayment ability.
3. Choose payment type: Decide between a lump sum or monthly installments.
4. Pay the application fee: Prepare to pay a $205 nonrefundable application fee.
5. Get professional assistance: For help creating and filing an OIC, consider hiring a tax relief firm familiar with the negotiation process.

File for bankruptcy

• What it is: Bankruptcy can sometimes discharge tax debt and halt a lien.
• Best for: This is a last resort for those who cannot pay their tax debt and face severe financial hardship.

Here’s what to do if this is an option.

1. Assess your situation: Determine whether bankruptcy is the right option for you.
2. Understand the implications: Know the differences between Chapter 7 and Chapter 13 bankruptcy.
3. Seek legal advice: Consult with a bankruptcy attorney to understand the process.
4. Complete required steps: Ensure all tax returns for the past four years are filed, and pay any required taxes during the bankruptcy process.

How does a tax lien affect you?

A tax lien can affect your creditworthiness, borrowing ability, and ability to sell or refinance property. Here’s how:

• Creditworthiness: Tax liens are no longer included on credit reports from major credit bureaus but remain public records. Potential creditors can find out about a tax lien, affecting their lending decisions.
• Borrowing ability: Public tax liens can deter lenders, who may see you as a higher risk due to the unpaid debt and the lien’s claim on your assets.
• Selling or refinancing property: Liens on homes or vehicles can prevent you from selling or refinancing until the debt is resolved.

It’s essential to address a tax lien as soon as possible to avoid further financial complications.

What’s the difference between a tax lien withdrawal and a tax lien release?

• Tax lien release: Occurs after you pay off your tax debt. The IRS releases the lien within 30 days, removing the notice of federal lien from your property and public record.
• Tax lien withdrawal: Removes the public notice of a lien but does not absolve you of the debt. You may qualify if you meet certain criteria, like establishing a direct debit installment plan, owing $25,000 or less, and making on-time payments.

Read More

How to get help with back taxes

How long does it take to remove a federal tax lien?

The time frame for removing a federal tax lien depends on how you resolve the debt:

• Paying off debt: If you pay your balance or submit a bond guaranteeing payment, the lien is removed within 30 days.
• Payment plan: Establishing and adhering to a qualifying payment plan allows you to request a lien withdrawal after at least three months of on-time payments.
• Unpaid debt: The IRS can pursue collection for a minimum of 10 years plus 30 days from the assessment date.

Can I remove a tax lien from some of my property?

While a federal tax lien affects all your property, you can sometimes remove it from specific assets:

• Discharge: Removes the lien if the government’s interest is deemed to have no value or if you’re selling a property for less than the lien amount.
• Selling property: The lien is typically paid from the sale proceeds. For sales below the lien value, you can request an IRS discharge to proceed.

What’s the difference between discharge and subordination?

• Discharge: Removes the lien from a specific property, allowing transactions like sales or using the property as collateral.
• Subordination: Does not remove the lien but allows other creditors to be prioritized over the IRS, facilitating new loans or refinancing.

How to avoid a tax lien in the future

To prevent future tax liens:

• Plan ahead: Make estimated quarterly tax payments to spread out the tax burden.
• Seek professional help: Work with a tax professional to plan and reduce your tax bill.
• Respond promptly: Address any notices about back taxes immediately by paying your debt or setting up a payment plan.