Individuals who have unpaid tax debts are at risk for having tax liens taken out against them by the Internal Revenue Service (IRS). Once a debtor has satisfied their debt, their tax lien should be released. However, tax liens and releases are often complex legal matters. An experienced tax relief attorney at Damiens Law can help those dealing with tax debts either avoid or navigate IRS tax liens. Contact our office for a free consultation.
You can reach our Mississippi office at (662) 442-4423 or our Tennessee office at (901) 499-4466 to schedule your consultation today.
What is a federal IRS tax lien?
A federal IRS tax lien occurs when someone has failed to pay an outstanding tax debt. The government will make a legal claim against the debtor’s assets or property to obtain the funds they need to cover the cost of the debtor’s outstanding tax debt. Federal tax liens can occur when the IRS sends a Notice and Demand for Payment, which is a document that describes how much a taxpayer owes, or assesses their tax liability.
The IRS must file a Notice of Federal Tax Lien which will then alert creditors that the government has taken an interest in your assets and property. This can also include your bank account funds, real estate, motor vehicles, and other assets. Without a payment plan in place, if the debt remains unpaid, the IRS can seize taxpayer assets and use them to recoup their losses in a tax levy.
What is the difference between a tax lien and a tax levy?
Tax liens and tax levies are often used interchangeably, however, they are actually two separate IRS issues. A tax lien occurs when the government secures an interest in an individual’s property or assets when they owe a federal tax debt. Conversely, a tax levy involves the actual seizure of the assets or properties to pay the outstanding tax debt. Only after an IRS levy has been issued can an individual’s assets or property be seized to cover the tax debt.
What happens when you have a tax lien?
A tax lien can affect a person’s life in many ways. First, once a tax lien has been attached to someone’s assets, it can have a devastating impact on their ability to acquire access to future lines of credit and assets. Business owners may even risk their right to account receivables and business property if a tax lien is imposed. Furthermore, tax liens may continue after bankruptcy, as federal tax debts may not be considered exempt when an individual declares bankruptcy.
How to avoid a tax lien
Avoiding a tax lien can be easier than previously thought. By filing tax returns in a timely manner and paying required tax debts on time, individuals and businesses alike can avoid tax liens. If the IRS attempts to communicate with an individual or business owner, doing so could mean the difference between a tax lien and securing a payment plan option to avoid an eventual tax levy.
Even those taxpayers who are dealing with tax debts can avoid tax liens by working out payment arrangements with the IRS to repay their debt over a period of time. Although tax liens may not be issued against taxpayers who owe liabilities of less than $10,000, it is at the discretion of the IRS when a tax lien will be issued. In many cases, entering into an installment agreement can reduce the likelihood of a tax lien being filed against an individual or business owner. Anyone with outstanding tax debts $50,000 are or more are more likely to be at risk for IRS federal tax liens.
How to satisfy your tax liability
Paying a tax debt off in full is the best way to avoid a federal tax lien. Once an outstanding tax that has been paid, the IRS must release tax liens within 30 days. When paying off tax debts in full is not possible, several options may be available, including:
When the IRS refuses to release assets or property from a tax lien, subordination may be a possible option. In this option, taxpayers may borrow against their assets in order to pay off their tax liabilities to the IRS. Taxpayers can then remain in possession of their property or assets without having to sell them to cover their tax debt.
Lenders may be more willing to grant taxpayers lines of credit in cases like these, as the IRS is considered a high priority creditor. Since the IRS retains an interest in the assets or property being borrowed against, lenders will often feel more secure in issuing lines of credit or loans.
When the IRS removes the Notice of Federal Tax Lien, they are stating that they are not going to compete with a taxpayer or other creditors for their valuable property or assets. However, that does not mean taxpayers are not responsible for covering their outstanding tax debt.
The IRS Fresh Start initiative provides two options for withdrawal of a taxpayer’s Notice of Federal Tax Lien. The first includes withdrawal of the taxpayers Notice of Federal Tax Lien after the lien has been released. Taxpayers may be eligible for this withdrawal option when:
- The taxpayers outstanding tax liability has been satisfied
- The taxpayers tax lien has been released
- The taxpayer is current on federal tax payments and estimated tax payments
- The taxpayer has remained in compliance with individual, business, and other federal tax returns for a minimum of three consecutive years
The second option for withdrawal of a taxpayer’s Notice of Federal Tax Lien involves entering into an installment agreement with the Internal Revenue Service. To qualify for a direct debit installment agreement or other type of repayment plan, taxpayers must meet the eligibility requirements which include:
- Owing $25,000 or less in outstanding tax debts, or paying down your outstanding tax debt to a maximum of $25,000
- Being a qualifying taxpayer, which includes business entities with outstanding text dad, individual taxpayers, and businesses with any type of income tax liability
- Making a minimum of three consecutive installment agreement payments
- Remaining in compliance with other federal and state tax filing and installment agreement payment requirements
Taxpayers who have previously defaulted on a direct debit installment agreement or any other type of repayment plan may not be eligible for a withdrawal. Any direct debit installment agreements or other repayment plans should be set up in a way that allows the outstanding tax debt to be paid in full within 60 months of the initial payment.
However, if the collection statute will expire before 60 months has passed, a taxpayer’s direct debit installment agreement or other repayment plan should be designed to allow for full repayment before the collection statute expiration date.
What to do after you paid off your tax debt
After a taxpayer has successfully paid off their outstanding tax debt, they may assume that their tax lien will be immediately removed. However, this is not the case. In order to ensure removal of a tax lien, there are certain steps a taxpayer will need to take including requesting a Certificate of Release and obtaining a copy of the Certificate of Release.
Request a Certificate of Release
Generally, the IRS will release tax liens within 30 days of a taxpayer satisfying their tax liability. However, if a federal tax lien is not released within this timeframe, the taxpayer should request a Certificate of Release of Federal Tax Lien. The information this request should contain includes:
- The date of the taxpayer’s request
- The taxpayers name, address, and contact information
- A copy of the Notice of Federal Tax Lien to be released
- The taxpayers reasoning for why the tax lien should be released
- Proof of payment of the outstanding tax debt
The IRS may need to open an investigation before agreeing to release a taxpayer’s tax lien. A Certificate of Release can be issued once the IRS has confirmed the taxpayer’s debt has been satisfied.
It is important to note that before a Certificate of Release can be issued, the taxpayer’s outstanding debt must be paid in full. If there is an unpaid balance on a taxpayer’s liability, the funds must be guaranteed before a Certificate of Release can be issued. This can be done through a bank money order, check, certified check, or cashier’s check.
Be sure to request a copy of your Certificate of Release if you did not receive one within 30 days of satisfying the tax liability in question. Taxpayers who have additional questions about how to ensure their tax lien has been removed can contact a reputable tax relief lawyer at Damiens Law to learn more about their legal rights.
Reach out to an experienced tax attorney for help today
Those dealing with significant tax debts, or facing IRS tax liens related to unpaid taxes can obtain the legal guidance and support they need by contacting an experienced tax relief attorney at Damiens Law.
Schedule a no-cost, risk-free consultation by filling out our online contact form. Please call our Mississippi office at (662) 442-4423 or our Tennessee Office at (901) 499-4466 to speak with our legal team today.