When the IRS Places a Federal Tax Lien on Your Property: Your Financial Freedom is at Stake
Discovering that the IRS has placed a federal tax lien on your property can be one of the most stressful financial situations you’ll ever face. The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property, and the filing of the lien may limit your ability to get credit and attaches to all assets, personal or business, as well as future assets acquired during the duration of the lien. However, understanding your options for removal can help you regain control of your financial future in 2024.
What Exactly Is a Federal Tax Lien?
A federal tax lien is a legal claim to your property (such as real property, securities and vehicles), including property that you acquire after the lien arises, and arises automatically if you don’t pay the amount due after receiving your first bill. A lien is not a levy – a lien secures the government’s interest in your property when you don’t pay your tax debt, while a levy actually takes the property to pay the tax debt.
The consequences of a federal tax lien extend far beyond just the initial debt. If the IRS files a lien against your business, it attaches to all business property and to all rights to business property, including accounts receivable. Even more concerning, if you file bankruptcy, your tax debt and lien may continue after the bankruptcy.
Proven Removal Strategies for 2024
1. Pay Your Tax Debt in Full
The most straightforward approach remains the most effective. Paying your tax debt in full is the best way to get rid of a federal tax lien, and the IRS releases your lien within 30 days after you have paid your tax debt. The IRS is required to issue a release within 30 calendar days of the date when the tax including penalties and interest is full paid.
2. Direct Debit Installment Agreement (DDIA) Withdrawal
One of the most significant opportunities available in 2024 involves establishing a Direct Debit Installment Agreement. You may qualify for withdrawal of your Notice of Federal Tax Lien if you are a qualifying taxpayer (individuals, businesses with income tax liability only, and out of business entities), owe $25,000 or less, have a Direct Debit Installment Agreement that fully pays within 60 months, are in full compliance with filing and payment requirements, have made three consecutive direct debit payments, and haven’t defaulted on any previous agreements.
This strategy is particularly valuable because a lien withdrawal removes the public record of the lien but does not relieve you of the obligation to pay your tax debt, and one way to qualify is by entering into a Direct Debit Installment Agreement.
3. Property Discharge for Real Estate Transactions
If you need to sell property that’s subject to a federal tax lien, a discharge may be your solution. A discharge removes the lien from specific property, and if you want to sell a certain piece of property under a lien and intend to use part or all proceeds to pay your tax debt, you can apply for a Certificate of Discharge. If the home is being sold for less than the lien amount, the taxpayer can request the IRS discharge the lien to allow for the completion of the sale.
4. Lien Subordination for Refinancing
Subordination does not remove the lien but allows other creditors to move ahead of the IRS, which may make it easier to get a loan or mortgage. Taxpayers or lenders also can ask that a federal tax lien be made secondary to the lending institution’s lien to allow for the refinancing or restructuring of a mortgage.
5. Offer in Compromise
For taxpayers facing financial hardship, you can negotiate an Offer in Compromise with the IRS to settle your tax debt for less than the full amount, and if accepted, the lien will be removed once the settlement is paid. This option requires meeting specific eligibility criteria and demonstrating your inability to pay the full amount.
6. Lien Withdrawal After Release
Even after paying your debt in full, you may benefit from requesting withdrawal of the public record. One withdrawal option may allow withdrawal of your Notice of Federal Tax Lien after the lien’s release, with general eligibility including that your tax liability has been satisfied and your lien has been released, and you are in compliance for the past three years in filing.
Working with Professional Tax Resolution Services
Navigating federal tax lien removal requires expertise and attention to detail. Companies like All County Tax Resolution, based in New York and Pennsylvania, specialize in helping taxpayers resolve complex IRS issues. They understand that dealing with tax problems can feel overwhelming, which is why they emphasize that no case is too small and encourage taxpayers to seek professional assistance.
Professional impact tax resolution services can be invaluable in determining which removal strategy best fits your specific situation. These professionals stay current with IRS procedures and can help ensure that all forms are properly completed and submitted within required timeframes.
Taking Action in 2024
The key to successful federal tax lien removal lies in prompt action and proper strategy selection. Don’t ignore notices from the IRS – even if you can’t pay the taxes you owe, responding to a notice before the due date could prevent a lot of trouble. To apply for withdrawal of the NFTL, submit Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien, and the IRS will notify you by letter if your application was accepted or denied.
Remember that when conditions are in the best interest of both the government and the taxpayer, options for reducing the impact of a lien exist. Whether through payment arrangements, property discharge, or complete withdrawal, multiple pathways exist to restore your financial freedom and remove the burden of a federal tax lien from your life.
The federal tax lien removal process in 2024 offers more opportunities than ever before, particularly with the expanded Direct Debit Installment Agreement withdrawal options. By understanding these strategies and working with qualified professionals, you can develop an effective plan to resolve your tax lien and move forward with confidence.