How Can Someone Prevent Tax Liens?
The IRS can file a lien against you for the taxes you owe, which will detrimentally impact the sale of your assets and your credit score. If you want to prevent a lien, either pay it off in full or enter into an installment agreement with the IRS.
The IRS can file a lien against you if you owe taxes. The lien is filed in the local courthouse of the county you live in, and attaches to all your property – both real and personal. So if you try to sell your home when it has a lien on it, you will be forced to pay the IRS before collecting any proceeds. In theory, if you sell any other assets, the IRS should get paid too (though as a practical matter, this rarely happens).
When a lien is filed, it becomes a matter of public record showing the full amount owed to the IRS. This information is routinely picked up by the various credit reporting bureaus, so federal tax liens will eventually show up on your credit report, negatively affecting your ability to get credit in the future.
How Can I Prevent A Lien?
Paying your tax debt in full will prevent the IRS from filing a lien in the first place. If it’s not possible for you to do so in one shot, you can set up an installment agreement. The IRS will not file a federal tax lien against you if you set up either a guaranteed installment agreement, which requires the outstanding balance be $10,000 or less, or a streamlined installment agreement, which requires the outstanding balance be $25,000 or less.
I owe more than $25,000 and can’t pay it off in full immediately. Can I still prevent a lien?
You’ll need to pay down the balance so that you’re at $25,000 or less, at which point you can establish a streamlined installment agreement with the IRS.
Will The IRS Notify Me When They File A Lien Against Me?
Generally, the IRS will send you a Notice of Federal Tax Lien after the federal tax lien has already been filed with your local county. Federal tax liens are effective beginning ten days after the IRS issues a written demand for payment of outstanding taxes.
How Can I Remove A Federal Tax Lien?
The IRS will remove a federal tax lien if:
- The lien was filed in error (for example, the lien was filed against the wrong person);
- The outstanding balance is paid in full;
- The outstanding balance is otherwise satisfied (for example, through a successful offer in compromise); or
- The lien becomes unenforceable (for example, the lien has expired as the ten-year statute of limitations has run).
How Does The IRS Remove A Federal Tax Lien?
The IRS can either withdraw or release a federal tax lien. The withdrawal of a federal tax lien means the IRS will rescind the lien, as if the lien was never filed in the first place. Lien withdrawals generally occur when the federal tax lien was filed in error. If a lien was filed in error, you should contact the IRS right away. An IRS agent will review your account history to verify that you don’t owe the outstanding tax, and will prepare the paperwork necessary to withdraw the lien. The IRS has additionally instituted a Fresh Start program under which taxpayers may be eligible for lien withdrawal provided certain criteria are met (such as if your outstanding balance is under $25,000).
The release of a federal lien means that the lien no longer encumbers your property. Most federal tax liens are released by the IRS within 30 days of full payment, or upon setting up a guaranteed or streamlined installment agreement. Less frequently, the IRS may release a federal tax lien if that speeds up the collection of tax or it’s in the best interests of the taxpayer and the government. As a practical matter, the IRS should provide you with a copy of the lien release, which you can forward to the credit reporting bureaus to update your credit reports. Note that while county records will be updated to reflect your lien’s release, the fact that there was once a federal tax lien will remain on your credit report for up to ten years.
Now let’s review the different methods of resolutions available so that you can figure out which is best to get you out from under your tax debt.