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What Are the Implications of a Federal Tax Lien Release?

A tax lien release is applied on taxpayer accounts with significant outstanding tax liabilities who failed to contact the IRS and establish a payment plan promptly. Lien releases are challenging to get and require a substantial amount t of effort to receive. You must pay off your debt to get the government off your back. Because of this, you have a few other options at your disposal, provided you play your cards right. Let’s go over the basics.


How to Get a Federal Tax Lien Release

A federal tax lien release is a claim made by the government on all your property. This lien declares the government’s interest in your property superior to any other current or would-be creditor. The way it works is the government issues a Notice of Federal Tax Lien, which becomes part of the public record.

If you settle your debt or enter into an arrangement with the IRS directly, you may be able to secure a federal tax lien withdrawal. Within the next five business days, the IRS will send you a Notice of Your Right to a Collection Due Process Hearing, allowing you to dispute the lien if you have the necessary evidence.

Alternatively, you can use the CDP hearing as an opportunity to propose another way to pay your debt if a conventional payment plan is not in the cards now. A successful hearing means the lien is removed from the public record before it becomes active. You’re in the clear.

Avoid Active Status

If you cannot stop the lien, it will become active. An active lien means you must prioritize the government when making payments or liquidating your assets. It also means that you cannot get approval for a loan or any other form of financing until you settle the matter with the IRS or get the government’s permission. In the past, a public notice of a federal tax lien would also constitute a death blow to your credit score, equivalent to filing bankruptcy.

Due to frequent mistakes involving similar names, however, the three major credit reporting agencies stopped reporting tax liens in 2017. Meaning you will no longer find tax liens on your credit report. Despite this, creditors can still look up a tax lien, which may impact your ability to seek financing for the foreseeable future.

Understand Tax Lien Release Procedure

A lien allows the IRS to supersede all other creditors, but it does not yet constitute a complete physical claim of your property. Getting a lien “released,” meaning getting the IRS to stop prioritizing its debt over any other, requires you to fulfill your obligation. If you cannot pay your debt entirely, you may be able to enter a payment plan instead.

Specific plans allow you to get a premature lien release if you can make several timely payments through automated withdrawals and haven’t previously defaulted on any payment plans with the IRS. This arrangement is not guaranteed but may be available depending on your circumstances.

Tax Lean Release Negotiation

If you cannot get a lien released immediately, you can still negotiate a lien subordination or a lien discharge. A lien subordination allows you to choose a single creditor to supersede the IRS’ claim on your property. In this case, the IRS will selectively enable payment to a creditor before completing the tax lien through Form 14134.

On the other hand, a lien discharge selectively omits a single property from the tax lien through Form 14135. This discharge allows you to use that property as collateral to raise funds, for example, or sell it and use the money to secure a better financial position instead of immediately wiring it to the IRS.

Remember, the goal of a federal tax lien is to implement a coercive strategy to initiate the collection action. The IRS will usually only allow either of these if they somehow contribute to helping you get back on your feet to make your due payments and resolve your tax – an important example is a foreclosure.

More than anything else, the IRS wants its money. But it can’t do that if its tools leave taxpayers destitute. The government must release the lien within 30 days of your debt resolution. This release alerts other creditors that you are no longer under a federal tax lien.


Federal Tax Lien vs. Tax Levy

Understanding the difference between a tax lien and a tax levy is extremely important when dealing with tax issues and the IRS. Here is everything you need to know about the liens and levies:

Tax Lien

A federal tax lien should not be confused with a tax levy. Whereas a lien constitutes a legal claim, a levy constitutes the government coming in to claim a piece of property, the remnants of a bank account, or a portion of your weekly wages.

Tax Levy

A tax levy is the IRS’s last resort when all other options have been exhausted. When the IRS begins levying your assets or wages, your only way to stop them is to enter a payment plan as soon as possible and start chipping off your debt.


The Importance of a Tax Lien Release

Tax debt payment plans can be negotiated with IRS and instituted in a way that helps you pay it off. Streamlined payment plans allow you to get started with as little preamble as possible, provided your debt is eligible for a simplified method. Suppose you can prove that you’re financially incapable of paying off the remainder of what you owe within a reasonable time frame. In that case, you can opt for an offer in compromise instead, based on what you will pay monthly.

If you want to negotiate payment plans with the IRS, especially an offer of compromise, professional tax help is essential. The IRS rarely accepts offers in compromise and may deliberate your request for some time before rejection. That’s valuable time wasted as your debt continues to grow. A brilliant offer is necessary to minimize your chances of rejection and turn an outrageous debt into something manageable.

Whether through a release, a withdrawal, a discharge, or a subordination, managing your lien requires you to get in touch with the IRS and negotiate a payment plan or something similar. If you owe the IRS a significant debt and are unsure how to navigate your situation, it is always in your best interest to get in touch with a tax professional.


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