Lien Withdrawal

A federal tax lien is the government’s legal claim against your property when you have a tax delinquency and fail to remedy the situation. The lien protects the government’s interest in all your property. This includes real estate, personal property and financial assets. To put this into play, the IRS will issue a Notice of Federal Tax Lien Form 668(Y)(C) to alert you and your creditors regarding an IRS Tax Lien Filing. In like form, State Tax debt can result in a tax lien being applied to your assets. Tax liens are public records.

Although a tax lien may feel as though it has appeared out of thin air, it is actually a substantial process in terms of time and effort to collect on a tax debt. It is either a tax delinquency that has been ignored for a substantial amount of time, or the amount of tax debt had been unnoticed by federal and state agencies for enough time to become a large tax debt “out of nowhere”. Although the last scenario is not common, it does happen and the government may, immediately, file for a tax lien to be placed quickly due to the size of the debt.

A federal tax lien is different from a tax levy. A lien encumbers property to secure payment of a tax. A levy is the actual seizing of property. In much the same way that your home is financed by a mortgage secured by the property itself – so, the bank can have something to sell if they need to get their money back for non-payment on that mortgage –a tax lien offers “security” for the nonpayment of a tax debt. Tax liens become levies. Once the lien turns into a levy, the IRS has the power to seize assets that it already laid claim to with their tax lien. The tax agency, however, must send you a Final Notice of Intent to Levy giving you a limited number of days to find a suitable solution to avoid the levying of your accounts and assets.

Liens can present a problem in many facets of life by damaging your credit report and, as a public record, liens make it very hard to secure credit and borrow money against your property. They can also make it hard to sell your property, or refinance, as long as the lien is showing up on the public record. Similarly, they can make it difficult for you to be approved for an automobile loan. Simply put, federal and state tax liens take precedence over the “positions” that other lenders will have on any financing – home or automobile. Lenders of secured financing usually choose to have a “primary” security, not a secondary (or greater) security. A tax lien immediately takes a primary security position and lenders find themselves suddenly in a secondary (or greater) security position.

Requesting a lien “withdrawal” removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for your property. It allows secured lenders to retain their level of security on your property. However, you remain liable for the amount due. In order to request a lien “withdrawal”, an Application for the Withdrawal of File Form 668(Y), Notice of Federal Tax Lien must be filed. Your tax balance due should be $25,000.00 or less to apply for Lien Withdrawal and you must meet other IRS requirements to be eligible to apply for the Tax Lien Withdrawal. Eligibility requirements can include the setting up of a payment plan; the establishment of an Offer In Compromise – a settlement of the amount of the tax delinquency; or the establishment of “hardship”in your effort to provide the essentials for you and your family in terms of a place to live and being able to sustain the basic necessities of life.

It is always important to remember that you can file an Appeal with the IRS. If you don’t agree with the tax debt assessment, you have the right to request a collection due process hearing. This motion enables the IRS Office of Appeals to review the tax lien or levy. Favorable outcomes can come as a result of this effort by the taxpayer.

Being proactive by the taxpayer in any situation regarding tax delinquency can shrink the size of the issues of liens and levies. A “withdrawal” happens when a taxpayer pays the amount due immediately after receiving a Notice of Intent to File a Tax Lien. The lien literally disappears before it is publicly placed on your account. Your credit score is not affected because credit agencies are never notified of the lien.

Proactivity is the key to a successful outcome regarding tax delinquency.