How to Remove a Federal Tax Lien

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The Internal Revenue Service files federal liens against taxpayers who have unpaid tax obligations. A federal tax lien is a document that goes on record with a county government as a matter of public record, usually in the location where the taxpayer lives or conducts business. It notifies the general public that the taxpayer has an unpaid federal tax debt.

Liens can attach to the taxpayer's real property or personal property. They record the full amount owed to the IRS. The IRS is paid out of the sales proceeds before the taxpayer receives any money if the property is sold while a lien is in effect against it.

Liens vs. Levies

The words "lien" and "levy" are sometimes used interchangeably, but liens are different from levies. A tax lien is a document filed by the IRS to protect the government's ability to collect money, while a levy is the forced collection of tax, usually by confiscating money directly out of a bank account or paycheck.

A lien attaches to property so the IRS will receive payment when that property is sold. A levy actually takes the property to collect a tax debt.

Notifying Taxpayers That a Lien Has Been Filed

The IRS generally notifies taxpayers after a federal tax lien has already been filed, but not without a warning first. The IRS will first send a Notice of Demand for Payment, citing the amount due. It will then send a taxpayer a Notice of Federal Tax Lien after the lien has been accomplished. Federal liens are effective 10 days after the IRS issues the written demand for payment of outstanding taxes.

Preventing a Lien

Federal tax liens can be prevented by paying the tax in full before a lien is filed by the IRS, but that's not always possible for all taxpayers. Liens can also be prevented by setting up an installment agreement with the IRS that meets certain requirements if you can't pay the entire amount due in one lump sum. The IRS won't file a federal tax lien if a taxpayer sets up either a guaranteed installment agreement or a streamlined installment agreement.

These types of installment agreements require that the outstanding balance be $10,000 or less in the case of a guaranteed installment agreement, or $25,000 or less in the case of a streamlined installment agreement.

If a taxpayer owes more than $25,000, a lien can be prevented if the taxpayer pays down the balance so it's $25,000 or less and they can establish a streamlined installment agreement.

Removing a Lien

The IRS will remove a federal tax lien if the lien was filed in error, when the outstanding balance is paid in full, or if the outstanding balance is otherwise satisfied, such as through a successful offer in compromise. It will also remove the lien if it becomes unenforceable. This can happen if it's expired due to the 10-year statute of limitations.

There are two basic ways to remove a federal tax lien: withdrawal and release.

Withdrawing a Federal Tax Lien

Withdrawing a federal tax lien means the IRS will rescind the lien as if it was never filed in the first place. Lien withdrawals generally occur when the tax lien was filed in error, such as against the wrong taxpayer.

Contact the IRS right away if a lien was filed against you by mistake. 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 it.

The IRS has instituted a Fresh Start Program under which taxpayers might be eligible for lien withdrawal provided certain criteria are met.

Releasing a Federal Tax Lien

Releasing a federal lien means that the lien no longer encumbers your property. County records will be updated to reflect that the lien has been released. Liens are released within 30 days of full payment of the outstanding tax obligation, or upon setting up a guaranteed or streamlined installment agreement.

The IRS might release a federal tax lien if it will speed up the collection of tax or if it's in the best interests of the taxpayer and the government, but most federal tax liens are automatically released by the IRS after full payment of the tax owed.

Under the Fresh Start Program, taxpayers can be eligible for lien release if their outstanding balance is under $25,000. You might consider bringing your balance under $25,000 by transferring some or all of your tax to a credit card or home equity line, or by making payments to bring your balance under the $25,000 threshold.

Dealing with Liens

The best way to prevent a tax lien from being filed is to bring your outstanding balance under $25,000, if possible, and set up an installment agreement. You could become eligible for a streamlined installment agreement, and no federal tax lien would be filed. Your options are much more limited after the IRS has filed a tax lien.

How a Federal Tax Lien Impacts Your Credit

The information is routinely picked up by the various credit reporting bureaus when a lien is filed and entered into public record, so federal tax liens will appear on your credit report and adversely affect your credit score. Even when and if the lien is released, the fact that it was once there will remain on your credit report for up to 10 years.

Unlike credit and loan accounts, the IRS won't periodically update the balance on your federal tax lien. You can contact the IRS to obtain a letter showing the current payoff amount, but that updated payoff amount will only be sent only to the taxpayer.

The IRS should provide you with a copy of the release if the lien is released, which you can then forward to the credit reporting bureaus to update your credit reports.

Where to Get Help

Taxpayers who need assistance in dealing with tax liens and tax collections should seek the advice of a federally authorized tax practitioner such as a tax attorney, a certified public accountant, or an enrolled agent. Taxpayers can also receive free help from publicly-funded tax clinics and from the Taxpayer Advocate Service.

Article Sources

  1. IRS. "What's the Difference Between a Levy and a Lien?" Accessed July 13, 2020.

  2. IRS. "Understanding a Federal Tax Lien." Accessed July 13, 2020.

  3. IRS. "Topic No. 201 The Collection Process." Accessed July 14, 2020.

  4. IRS. "Additional Information on Payment Plans." Accessed July 14, 2020.

  5. IRS. "Instructions for Requesting a Certificate of Release of Federal Tax Lien." Accessed July 13, 2020.