Tax Machine Blog™

Can I fight a Federal Tax Lien?

BY: THOMAS S. GROTH, ESQ (@tsgESQ)

Have you gotten one of these recently?

Federal-Tax-Lien

 

Over the past several years, with the help of automated systems, the IRS has been filing an increasing number of tax liens. But, according to the National Taxpayer Advocate, though IRS tax lien filings have increased – IRS collections remain flat:

“If lien filings were clearly correlated with substantial increases in revenue collection, one could at least understand the IRS’s position. But over the same period that the IRS has increased lien filings by 550 percent, revenue collected by the IRS’s Collection function has remained flat.”

 

So is there anything that a taxpayer can do to make this public record of federal tax debt go away? Yes and no.

Generally, the “easiest” way to eliminate a federal tax lien is to pay off the underlying debt. Of course, that isn’t always in the cards, so is there a way to have a tax lien removed without paying off the entire debt owed? Sometimes. But it isn’t easy.  First, I am going to talk about the different ways a tax lien can be “removed,” then I am going to talk about the situations where the IRS will consider removing a lien and how it fits into those different categories of IRS lien removal. Realize that even if a the IRS agrees to remove a tax lien, it doesn’t mean that the tax debt is gone for good. The lien itself is just one part of a tax debt – it establishes the IRS’s priority to a taxpayer’s property when taxes are owed.

 

Lien releases, Lien withdrawals are not created equal

When dealing with getting rid of a tax lien, the first thing to consider is what you are looking to accomplish. Tax liens are public records. They show up on credit reports, they are filed in town or county real estate records, and filed with the Secretary of State (to make a claim for personal property). A tax lien can have an impact on your credit, it can impact your ability to find a job (especially a job that requires you to be bonded – like a financial advisor). So are you trying to erase any mention of a tax lien and make it “disappear,” or are you simply looking for the IRS to remove its public, priority claim, to your personal and real property?

Lien Release v. Lien Withdrawal

After the IRS files a Notice of Federal Tax Lien (NFTL), other creditors are put on notice that the IRS has a secured interest in a person’s property, When a tax debt is satisfied in full, the IRS is required to “release” the lien. When the IRS releases the lien, a taxpayer will now have 2 public records – a record that a NFTL was filed, and a record that it was released. That means that there is still a mark on your credit report that shows you previously had a tax lien. This can impact your credit score even though the lien has been released.

A lien withdrawal is different because when the IRS sends credit reporting agencies the withdrawal notice, they drop any reference to the tax lien in the taxpayer’s credit history. If a lien is not withdrawn, but simply released, it can stay on someone’s credit record for up to 7 years. So clearly, a withdrawal is better than a simple release. It is also more difficult to get.

Different ways to combat an IRS lien.

As mentioned above, the first way to rid yourself of a federal tax lien is to pay the underlying liability. Paying the liability in full will lead to a release of the lien. Paying the liability in full will also – no doubt – be considered if you follow-up with the IRS and ask them to withdraw the lien. The IRS will consider withdrawing a lien when it would 1) be in the best interest of the taxpayer and the United States or when 2) it will facilitate the collection of the tax liability.

The IRS may also withdraw a lien if it was filed prematurely, or if  a tax payer enters into an installment agreement to pay the entire amount (under the Fresh Start program.)

If you enter into an Offer in Compromise, a tax lien will be released once all of the terms are met. (But good luck getting a withdrawal!)

IRS Tax Liens can also be “stripped” in the process of a Ch 13 (or even a Ch 7) bankruptcy.

When the IRS sends a taxpayer a NFTL, the taxpayer has 30 days to file for what is called a “Collection Due Process” hearing. Unlike a Final Notice of Intent to Levy, the NFTL is filed after the deed is done, and filing for a CDP hearing won’t stop the filing of a lien like it will stop the IRS from acting on the lien (by “levy” aka garnishment). If a taxpayer receives this notice and responds by requesting the hearing the taxpayer can make the case that the lien should be released or withdrawn. The taxpayer will still need to establish that s/he qualifies under the standards discussed above. The benefit to requesting a release/withdrawal in the context of a CDP hearing is that a taxpayer can appeal an adverse decision made by an IRS Settlement Officer to Tax Court.

 

Have you received a Notice of Federal Tax Lien filing? If you want to discuss your options, give me a call at 860-484-3529, or schedule an appointment for a free consultation.