IRS Lien Withdrawal: How to Remove a Federal Tax Lien From Public Records
An approved IRS lien withdrawal removes a filed Notice of Federal Tax Lien from public records. While a lien release addresses the lien itself, the withdrawal specifically addresses the public notice, and in some cases, it’s an option even if you still owe taxes.
Working with a tax lien attorney can help you understand your options and find the right path forward, and the team at Damiens Law is here to help. Call us at 601-476-1361 to schedule a consultation.
Key Takeaways:
- A lien withdrawal removes the filed Notice of Federal Tax Lien from the public record.
- Withdrawal does not necessarily eliminate the underlying tax debt.
- The IRS may withdraw a Notice of Federal Tax Lien when it was filed improperly, when withdrawal will facilitate collection, or with certain installment agreement arrangements.
- Taxpayers may qualify for withdrawal after they have paid the tax debt and the lien has been released.
- Withdrawal, release, discharge, and subordination are different lien remedies that serve different purposes.
What is IRS Lien Withdrawal?
A lien withdrawal is when the IRS removes a federal tax lien from the public record.
To understand that, you have to know the difference between a federal tax lien and a Notice of Federal Tax Lien:
- A federal tax lien arises when the IRS assesses a tax liability, the IRS notifies the taxpayer and demands payment, and the taxpayer does not pay. The lien is automatic and represents the government’s claim against the taxpayer’s property.
- A Notice of Federal Tax Lien is the document filed by the IRS to notify other creditors of the government’s interest in the taxpayer’s property. The NFTL affects the government’s priority relative to other creditors. It also creates practical problems when a taxpayer wants to borrow money, refinance property, or complete some transactions.
Withdrawal addresses the Notice of Federal Tax Lien, not the actual lien. Unless tax debt is otherwise addressed, the IRS still has an interest in your property, but when they withdraw the NFTL from the public record, they’re effectively agreeing not to compete with other creditors for priority.
IRS Lien Withdrawal vs. Release, Discharge, and Subordination
There are several relief options available for tax liens, and the right option for you depends on what you want to accomplish. Learn more how withdrawal compares to other options.
| Remedy | What it does | Removes NFTL from public record? | Does tax debt have to be paid off? | Most common purpose |
|---|---|---|---|---|
| Withdrawal | Withdraws the filed Notice of Federal Tax Lien | Yes | Not always | Removing public record of the lien |
| Release | Releases the lien from the taxpayer’s property | Removal from record is separate from release | Usually, unless the tax debt has become legally unenforceable | Ending the lien after the tax debt is resolved |
| Discharge | Removes specific property from the lien | No | Not necessarily | Allowing specific property to be sold or transferred |
| Subordination | Allows another creditor to take priority over the IRS | No | No | Allows property to be sold, refinanced, or transferred |
An IRS tax lien release generally occurs after the tax debt has been satisfied or after the IRS can no longer legally collect it. A discharge does not remove the lien, but allows specific property to be removed from the lien after the taxpayer submits Form 14135. Subordination also leaves the lien in place but allows another creditor to take priority over the IRS.
Who Qualifies for IRS Lien Withdrawal?
Under current tax law, there are several situations where the IRS can withdraw a tax lien. Approval is not guaranteed, so it’s important to determine which category your request fits in and provide the appropriate documentation to the IRS.
The IRS filed the NFTL incorrectly.
The IRS may withdraw a Notice of Federal Tax Lien if they filed it prematurely, filed it against the wrong taxpayer, or otherwise did not follow the agency’s administrative procedures.
Withdrawal would help the IRS to collect the tax.
The IRS may grant a withdrawal request if there’s evidence that withdrawal would support them in their efforts to collect what you owe. For example, a taxpayer may need access to financing to pay off their debt, but the NFTL is preventing them from accessing financing opportunities.
In this case, to get approved, you have to prove that withdrawal would make collection easier for the IRS.
Withdrawal is in the taxpayer’s and government’s best interest,
Another basis for withdrawal is if withdrawal is in the best interests of both the taxpayer and the U.S. government. This allows the IRS to consider cases where maintaining the NFTL doesn’t improve collection odds and withdrawal helps both sides.
You set up a qualifying Installment Agreement.
Entering an installment agreement may also allow for withdrawal. Generally, you must agree to a direct debit agreement, owe under $25,000, and set up monthly payments that pay off the debt within a certain time frame. Then, once you make three monthly payments on time, the agency will withdraw the lien.
You have paid the tax debt in full.
If you’ve paid your tax debt off, the IRS may have released the lien, but not always. Sometimes, even if you’ve paid, the NFTL may still be in the public record. If you are compliant with filing requirements and other criteria, the IRS may withdraw the lien upon request.
How to Request an IRS Lien Withdrawal
You can request withdrawal by submitting Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. You will need to provide your personal information and the reason you are requesting withdrawal. Supporting documentation can also help show that you satisfy one of the applicable grounds for withdrawal.
Use our guide to IRS Form 12277 to start the application process.
What Happens After a Withdrawal is Approved
If the IRS approves your request for withdrawal, it files the withdrawal of the NFTL with the recording office. Keep a copy of your withdrawal and verify that it has been removed from the public record. This documentation may be helpful if a lender or title company discovers the original NFTL during a records search.
If you still owe the tax liability that led to the NFTL, you may also need to address it with the IRS. If you received withdrawal due to an installment agreement, ensure that you stay current on your installment agreement to avoid further issues.
Does Withdrawing a Tax Lien Remove the Tax Debt?
Withdrawal of a Notice of Federal Tax Lien does not necessarily cancel, forgive, or satisfy the taxes you owe. This relief option concerns the public notice of the lien, not the lien itself.
The right solution for your tax debt depends on your financial circumstances, the age of the debt, and how much you owe. Potential solutions may include:
Common IRS Lien Withdrawal Mistakes and Misconceptions
As you compare different relief options and plan your next steps, avoid these common mistakes and misconceptions:
- Assuming withdrawal and release are the same: The terms for lien relief options are often used interchangeably, but they serve very different purposes. The IRS may release a lien but not withdraw it from the public record. The IRS may also withdraw an NFTL without releasing the lien itself.
- Assuming payment withdraws the NFTL: Full payment does lead to release of a lien, but not necessarily the withdrawal of the NFTL. If you need the NFTL out of the public record, you may need to request withdrawal.
- Requesting discharge instead of withdrawal: Discharge relates to a specific piece of property you want removed from a lien. It does not withdraw the Notice of Federal Tax Lien itself.
- Assuming subordination removes the lien: Subordination changes creditor priority but it does not eliminate the tax lien or remove the public notice of it.
- Applying before establishing eligibility: Submitting Form 12277 without verifying that you’re eligible may lead to avoidable denials and delays. Before you request withdrawal, ensure that you qualify.
- Failing to remain compliant with tax requirements: If you’re requesting withdrawal on certain grounds, you may need to prove that you have filed all required returns, made estimated tax payments, and made federal tax deposits (if required).
- Confusing state and federal tax liens: You must identify the source of the lien to seek relief. Requesting relief from the IRS when you have a Mississippi business tax lien may result in wasted time and effort.
When Lien Withdrawal is Most Helpful
Withdrawal of a Notice of Federal Tax Lien can be particularly important when you need to:
- Apply for a mortgage or other financing
- Refinance real estate
- Sell or purchase property
- Seek financing for a business
It’s also critical when you’ve paid your tax debt, the IRS hasn’t withdrawn it automatically, and you just want the record cleared.
Frequently Asked Questions
Can an IRS tax lien be removed from public record?
The IRS may withdraw a Notice of Federal Tax Lien when the taxpayer qualifies under one of several allowed reasons. Withdrawal removes the effects of the NFTL from the public record, although the money may still be owed to the IRS.
Can the IRS withdraw a lien if I still owe taxes?
In some cases, the IRS can withdraw a lien if you still owe taxes. Withdrawal may be allowed if it will facilitate collection or if you have a qualifying installment agreement.
How long does an IRS lien withdrawal take?
There’s no set timeline for withdrawal requests. Factors that may affect your processing time include the IRS’s caseload, the circumstances of your request, whether you submit complete documentation, and whether the IRS needs more information.
Does paying an IRS lien remove it from the public record?
Paying the associated tax debt does result in release of the lien, but withdrawal of the NFTL is a separate action. You may be able to request withdrawal after the lien has been released.
What’s the difference between Form 12277 and Form 14135?
You use Form 12277 to request withdrawal of a filed Notice of Federal Tax Lien, while Form 14135 asks the IRS to discharge a specific piece of property from the federal tax lien.
Will IRS lien withdrawal improve my credit score?
Federal tax liens do not show up on credit reports from any of the three major credit reporting bureaus, so withdrawal of a lien should not directly impact your credit score.
Contact Damiens Law to Discuss IRS Lien Withdrawal
Damiens Law is here to review the NFTL linked to your tax account, explore lien relief options, and help you with a broader plan to address your tax debt. If a federal tax lien is causing you financial difficulties, let’s talk about your options and next steps. Call us at 601-476-1361 or schedule your no-obligation discovery call online.
Resources:
https://www.law.cornell.edu/cfr/text/26/301.6323(j)-1
https://www.irs.gov/businesses/small-businesses-self-employed/understanding-a-federal-tax-lien
https://www.irs.gov/pub/irs-pdf/p1450.pdf
https://www.irs.gov/irm/part5/irm_05-012-009
https://www.irs.gov/businesses/small-businesses-self-employed/understanding-a-federal-tax-lien
