When a tax lien is put against a person, it means they owe a large sum of money to the IRS due to a failure to pay taxes. The lien is a way for the government to lay a claim on your property and seize it—should it come to that. Perhaps the most unfortunate aspect of a tax lien is that once it is issued, the IRS will not remove it until the entire amount has been paid.
Once the full amount is paid, the IRS can remove the lien in two ways: they can withdraw the lien, or they can release it. While both processes effectively accomplish the same thing, your credit rating will be greatly affected by the option that is chosen for you. We’ve compiled some crucial information on tax liens and what happens when they are removed.
The Dangers of Tax Liens
Tax liens are associated with tax levies, yet they carry different meanings and repercussions. Tax liens serve as a claim the government makes against your property, such as a house or car. It is especially important to mention that while a lien can be placed against your property, the federal government cannot actually seize your assets until a tax levy is enforced.
Consequently, your objective as a delinquent taxpayer is not to have a tax lien transform into a levy. However, if you do not act upon a current lien, it will inevitably turn into a levy where you could not only lose your property but also have bank accounts frozen and wages garnished.
There are many severe consequences to a tax lien:
- Tax liens are hard on your credit score. Though the rules have changed so that tax liens no longer appear on credit reports, the IRS can still file a public notice. It will inform creditors that the government has the right to your property and will likely prevent them from lending you money.
- Tax liens jeopardize a home sale or refinancing. Tax liens notoriously appear during title searches, which makes selling or refinancing a home difficult. Therefore, if you have equity in a house, you will likely have to use some of it to pay back taxes if you want to close on a sale.
- Liens are time-consuming. The IRS channels overdue taxpayers into an automated collection system known as ACS. Unfortunately, automated systems make it challenging to contact a human representative and usually waste hours of your valuable time.
- Tax liens become levies. Once the lien turns into a levy, the IRS has the power to seize the assets that it already laid claim to with a tax lien. However, the tax agency must send you a Final Notice of Intent to Levy, which gives you 30 days to get help before the damages are irreversible.
Contact a tax professional today if the IRS has placed a tax lien on you, or you received a Final Notice of Intent to Levy. You need to act before the IRS seizes your assets and freezes your bank accounts.
How to Remove a Tax Lien?
Taxpayers have a few options when it comes to resolving a tax lien. It is essential to speak to a tax professional about your tax lien as the process is complicated. The tax resolution experts at Levy & Associates will make sure that you meet all the expectations to satisfy the debt once and for all. Here are some of your options:
- Pay your tax debt. The first and most obvious solution is to pay off back taxes if you have the funds. However, in most cases, taxpayers are unable to pay a tax bill in full, which causes them to ask, “What next?”
- Pursue an installment agreement. The IRS offers its own payment plan for settling back taxes, known as an installment agreement. An IRS installment agreement works like other payment plans, meaning you accrue interest but can make monthly payments instead of covering the debt in one single payment.
- Request an Offer in Compromise. Another unpaid tax solution is to request an Offer in Compromise (OIC). The IRS Offer in Compromise is a process you take that requests a settlement with the tax agency. If the IRS agrees to your terms, it will forgive part or all your debt. However, nothing is guaranteed, so if you want to consider settling with the IRS, it is best to speak with a tax professional first.
- File an appeal with the IRS. Don’t agree with the tax debt assessed by the IRS? You have the right as a taxpayer to request a collection due process hearing. The motion enables the IRS Office of Appeals to review the tax lien or levy. There is a chance at a favorable outcome, but it’s best to get representation first and discuss the details of your case.
- File for bankruptcy. Unfortunately, back taxes are one of the few types of debt that even bankruptcy will not eliminate. However, depending on your circumstances, it may be a worthwhile option to consider to at least get some type of forgiveness if you also carry other debts. Notwithstanding, bankruptcy is always considered a last option after you’ve explored other methods to resolve tax debt.
A withdrawal occurs when a person or company pays the amount owed immediately after receiving the notice of a lien. This notice is called the Notice of Intent to File a Tax Lien, otherwise known as the NFTL.
As soon as the amount is paid, the IRS will withdraw the NFTL, allowing the lien to disappear before it is placed on your account. This means that your credit score will not be affected, as credit agencies will never be notified of the lien.
A release occurs when the individual or company does not take action after receiving the NFTL. To obtain the money they are owed, the IRS will go forward with their intent to file and place a lien on your accounts or property.
When this happens, you are still obligated to pay the full amount owed but may have the option to make payments and relieve the tax lien over a set period. A tax lien release will affect your credit significantly and could stay with you for up to seven years.
How Long Does It Take for the IRS to Withdraw Funds?
The IRS generally releases a tax lien within 30 days after you pay off the tax debt in full. The withdrawal removes the public Notice of Federal Tax Lien from your name and assures creditors that the tax agency no longer has any claim against your property.
As a result, it is possible that within a month, you can start moving toward applying for new loans or closing on a home that was previously impossible because of the tax lien. But in addition to paying the tax debt in full, the IRS needs you to meet other conditions of the agreement:
- The taxpayer complies for the past three years of filing.
- The taxpayer is current on estimated tax payments and federal tax deposits.
Another option is to have the IRS withdraw your Notice of Federal Tax Lien if you enter into an installment agreement or another tax debt solution (i.e., Offer in Compromise). The IRS has qualifications you need to meet before agreeing to a new installment agreement.
Contact Levy & Associates – Professional Tax Consultants
If you have received a Notice of Intent to File a Tax Lien (NFTL), you should contact a tax professional immediately to learn your options before it is placed on your account. The tax resolution professionals at Levy & Associates are well-versed in tax liens and will help you not only resolve them—but work to avoid them altogether. You can reach us through our website or by calling 1-800-TAX-LEVY.