How To Avoid A Federal Tax Lien

A tax lien put into official records can have lasting financial consequences—your credit rating will suffer, decreasing your ability and increasing your cost to obtain financing. While it would not have an impact if you plan to sell your personal property, tax liens will prohibit you from selling or refinancing real estate.  Accordingly, individuals with tax liens that encumber real property should learn how to get rid of tax liens and get out of tax debt.

Appeal

There are a few steps you can take once a lien notice is filed. The first is to appeal. Upon the lien filing, the Internal Revenue Service is given five business days to send a written notice to the taxpayer, which includes the notice of the right to request a hearing. The lien can be withdrawn if you win the appeal, but unfortunately the filing will stay on your credit report.  

Pay

Second, you have the option to pay in full. If you do not have enough resources to pay what you owe, perhaps you can seek help from friends, family, or a local tax lawyer. The IRS has 30 days from the date when you paid in full to record a release. In case the agency would not attend to it, reach out to the IRS Centralized Lien Operation or the Taxpayer Advocate Service.  

Lien Release To Sell Real Estate

Next, here’s a possible scenario: The IRS filed a Notice of Federal Tax Lien that was attached to a real estate you own. You are hoping to sell that property but you know that the amount you will get would not make up for what you owe. That’s okay. You can proceed to sell it and offer clean title once the agency releases your lien in writing. Your buyer can have the property without attached Federal Tax Lien but the catch is, all of the money will go directly to the IRS. The lien will remain on the record but your tax bill will be reduced.  

Subordination of Tax Lien For Mortgage Refinance

Now, what if a tax lien is filed but you intend to refinance your mortgage? You can opt to request a Notice of Federal Tax Lien subordination. If the IRS will accept your request, the refinanced loan will be prioritized over the lien.   

Notice of Federal Tax Lien Withdrawal

The last one is a rare situation but you can still try: Request that the Notice of Federal Tax Lien be withdrawn. If the IRS approves the withdrawal, the reference to your tax lien will be removed from the records, essentially boosting your credit score. You must submit the IRS Form 12277 and ask the agency to send a Certificate of Withdrawal copy to credit reporting institutions.  

There are circumstances when the IRS would improperly credit your account despite your bill payment. This will result in a filed tax lien notice that would appear in public records even if you do not actually owe anything to the agency. Do not worry because the Taxpayer Bill of Rights states that you are authorized to get a Certificate of Release saying that the tax lien was filed in error.  

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