A Notice of Federal Tax Lien is a public document the IRS files to alert creditors that the government has a legal right to your property. Check the notice for the amount, any instructions and any dates that apply to you.
What to have in front of you
- Your Notice of Federal Tax Lien and other IRS letters.
- Your tax returns and information returns.
- Information about your estimated tax payments and federal tax deposits, if applicable.
- Your installment agreement and direct debit payment information, if applicable.
What the notice means
A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The IRS says the lien protects the government’s interest in your property, including real estate, personal property and financial assets.
A federal tax lien exists after the IRS assesses a balance, sends a bill explaining the amount due, and the debt is not fully paid in time. The IRS calls that bill a Notice and Demand for Payment.
The Notice of Federal Tax Lien is the public document that alerts creditors to the government’s legal right. You can review your notice and contact the IRS with questions about your situation. A tax professional can also help you understand your options.
Options to discuss with the IRS
The IRS lists several options involving federal tax liens. Which options are available depends on your circumstances and the applicable requirements.
Payment and release. The IRS says paying the tax debt in full is the best way to get rid of a federal tax lien. It releases the lien within 30 days after the tax debt has been paid. If you cannot pay the full amount, the IRS lists payment options to settle a tax debt over time.
Discharge of property. A discharge removes the lien from specific property. The IRS says several Internal Revenue Code provisions determine eligibility. See Publication 783, Instructions on How to Apply for Certificate of Discharge From Federal Tax Lien.
Subordination. Subordination allows other creditors to move ahead of the IRS. It does not remove the lien, but it may make it easier to get a loan or mortgage. See Publication 784, Instructions on How to Apply for a Certificate of Subordination of Federal Tax Lien, for eligibility information.
Withdrawal. A withdrawal removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for your property. The IRS says you are still liable for the amount due. For eligibility, see Form 12277, Application for the Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien.
The IRS also describes withdrawal options after a lien has been released or when a taxpayer has a Direct Debit Installment Agreement.
Withdrawal after a lien is released
One option may allow withdrawal after the lien has been released. General eligibility includes having satisfied the tax liability and having the lien released.
It also includes compliance for the past three years in filing individual returns, business returns and information returns. Estimated tax payments and federal tax deposits must be current, as applicable.
Withdrawal with a Direct Debit Installment Agreement
Another option may allow withdrawal if you entered into a Direct Debit Installment Agreement or converted a regular installment agreement to one. General eligibility includes:
- Being a qualifying taxpayer, such as an individual, a business with income tax liability only, or an out-of-business entity with any type of tax debt.
- Owing $25,000 or less. The IRS says a balance above $25,000 may be paid down to that amount before requesting withdrawal.
- Having an agreement that will fully pay the amount within 60 months or before the Collection Statute expires, whichever is earlier.
- Being in full compliance with other filing and payment requirements.
- Having made three consecutive direct debit payments.
- Not having defaulted on the current or any previous Direct Debit Installment Agreement.
How a lien can affect property
The IRS says a lien attaches to all of your assets, including property, securities and vehicles. It also attaches to future assets acquired while the lien is in effect.
For a business, the lien attaches to business property and rights to business property, including accounts receivable. Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.
If you file for bankruptcy, the tax debt, lien and Notice of Federal Tax Lien may continue after the bankruptcy. The IRS has a Centralized Insolvency Operation for questions about whether bankruptcy has changed a tax debt.
A lien and a levy are different
A lien secures the government’s interest in your property. A levy takes property to pay a tax debt.
The IRS says it can levy, seize and sell property you own or have an interest in if you do not pay or make arrangements to settle the tax debt.
Questions and appeals
For basic or routine lien issues, the IRS Centralized Lien Operation can verify a lien, provide a lien payoff amount or address a lien release. For complex lien issues, including discharge, subordination and withdrawal, the IRS lists its Collection Advisory Group. Use the number printed on your notice, or see Publication 4235 for local advisory office contact information.
Under certain circumstances, you may be able to appeal the filing of a Notice of Federal Tax Lien. See Publication 1660, Collection Appeal Rights. The Taxpayer Advocate Service is an independent organization within the IRS that offers assistance and guidance.
You can also paste the letter into the Clarify Help box on the home page.
Where this comes from
IRS: Understanding a Federal Tax Lien