Federal Tax Lien

A Notice of Federal Tax Lien is unlike any other lien

A Notice Federal of Tax Lien can be filed against you without a court order, and perhaps even without your knowledge. The worst part is that a Federal Tax Lien adds more stress to an already difficult situation: not only the do you owe back taxes to the IRS, but the Lien also will harm your credit score.


Scary to think that if the IRS wants to take your stuff, they can just take your stuff!

What is a Federal Tax Lien?

According to the IRS:

A Federal Tax Lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:

Assesses your liability;
Sends you a bill that explains how much you owe (Notice and Demand for Payment); and
You neglect or refuse to fully pay the debt in time.
The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property.

IRS Fresh Start Program

The Internal Revenue Service created the IRS Fresh Start Program to help people get a fresh start with their tax liabilities. The goal is to help individuals and small businesses meet their tax obligations, without adding unnecessary burden to taxpayers. Specifically, the IRS is announcing new policies and programs to help taxpayers pay back taxes and avoid tax liens.

Two additional Withdrawal options resulted from the Commissioner’s 2011 Fresh Start initiative:

One option may allow withdrawal of your Notice of Federal Tax Lien after the lien’s release. General eligibility includes:

Your tax liability has been satisfied and your lien has been released; and also:

  • You are in compliance for the past three years in filing – all individual returns, business returns, and information returns;
  • You are current on your estimated tax payments and federal tax deposits, as applicable.

The other option may allow withdrawal of your Notice of Federal Tax Lien if you have entered in or converted your regular installment agreement to a Direct Debit installment agreement. General eligibility includes:

  • You are a qualifying taxpayer (i.e. individuals, businesses with income tax liability only, and out of business entities with any type of tax debt)
  • You owe $25,000 or less (If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting withdrawal of the Notice of Federal Tax Lien)
  • Your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier
  • You are in full compliance with other filing and payment requirements
  • You have made three consecutive direct debit payments
  • You can’t have defaulted on your current, or any previous, Direct Debit Installment agreement.

What if you don’t qualify for the Fresh Start program?

What can you do about a Federal Tax Lien?

We have seen Federal Tax liens removed in a personal Chapter 7 Bankruptcy, but typically they will not be (and then you have the problem of a Bankruptcy on your credit report). If you get into Currently non-collectible status, or a partial-payment installment agreement, the IRS will file a tax lien as a matter of right.

The most common way to request a removal of a tax lien when you don’t qualify for the Fresh Start program is to request a lien withdrawal to show that the lien is putting your income-earning ability at risk.

The other way to remove a tax lien is to have an Offer in Compromise accepted and paid. About 2 months after an Offer in Compromise is accepted and paid, the Notice of Federal Tax Lien will automatically be released. While a Release is not as favorable as a Withdrawal (A Lien withdrawal erases the existence of a tax lien on your credit report, a release shows there was a debt and it is paid in full).