Liens give the IRS a legal claim to your property as security or payment for your tax debt. A Notice of Federal Tax Lien is filed in the California county where you live whether it is Los Angeles County, Ventura County, Santa Barbara County or Orange County.
The lien may be filed only after the IRS assesses the tax liability, sends you a Notice and Demand for Payment which is a bill that tells you how much you owe in taxes, and you neglect or refuse to fully pay the debt within 10 days after being notified about it. If you want to pay in installments, the IRS will likely file a lien until the debt is paid in full. In either case, consult with a tax attorney immediately.
Once these requirements are met, a lien is created for the amount of your tax debt and may include some penalties and interest. By filing notice of this lien, everyone knows that the IRS has a claim against all your property, including property you acquire after the lien is filed. The courts use this notice to establish priority of claims against you in certain situations, such as sales of real estate or bankruptcy proceedings.
All your property such as your house or car and all your rights to property such as your accounts receivable, if you are a business, is attached by the lien. To add insult to injury, the IRS charges you the fee required by the county to record the lien.
Once a lien is filed, your credit rating will be harmed. Getting a loan to buy a house or a car, getting a new credit card, or signing a lease will probably be very difficult because few will extend credit to you when the IRS has a prior claim. Therefore, resolving your tax liability as quickly as possible before the lien is filed is important.
You can obtain a Release of the Notice of Federal Tax Lien within 30 days after you satisfy the tax due (including interest and other additions) by paying the debt or by having it adjusted, or within 30 days after you guarantee payment of the debt by submitting a bond accepted by the IRS. Refer to Publication 1450, Request for Release of Federal Tax Lien. Usually 10 years after a tax is assessed, a lien releases automatically if it has not been re-filed. Just call the IRS to get the pay-off amount.
Generally, when you pay-off the entire tax debt, you may apply for a Certificate of Discharge if you are giving up ownership of property, such as when you sell your home. For each application for a discharge of a tax lien, the lien against only that one specific piece of property is released. If you’re selling your primary residence, you may apply for a taxpayer relocation expense allowance. You may still be subject to conditions and limitations. Refer to Publication 783, Instructions on How to Apply for a Certificate of Discharge of Property from the Federal Tax Lien.
The IRS will sometimes work with you to help pay off your liability if you want to use the equity in your property to borrow money. But borrowing the money could be a problem when the tax lien has been recorded. In some cases, a tax lien can be made secondary to another lien. That process is called subordination. Refer to Publication 784, How to Prepare Application for Certificate of Subordination of Federal Tax Lien.
You should consider appealing the filing of the notice of federal tax lien when the IRS notifies you in writing not more than 5 business days after the filing of a lien that the lien has been filed. The first step may be to ask an IRS manager to review your case – although you’re not likely to succeed in having the tax lien released if you owe tax. By filing a request for a hearing, you may also request a Collection Due Process hearing with the Office of Appeals. Be sure and file your request by the date shown on your notice.
Some of the issues you may discuss include:
You did not have an opportunity to dispute the assessed liability
You paid all you owed before the lien was filed
The IRS made a procedural error in your assessment
The time to collect the tax expired before the IRS filed the lien
You wish to make spousal defenses
The IRS assessed the tax and filed the lien when you were in bankruptcy when it was not permitted to do so because of the application of the automatic stay during bankruptcy
You wish to discuss the collection options
At the end of your Collection Due Process hearing, the IRS Office of Appeals will issue a determination. That determination that the lien should be released or withdrawn or it may support the continued existence of the filed federal tax lien. If you disagree with this determination, you have a 30-day period starting with the date of determination in which you may request that a court review the matter. Look at Publication 1660, Collection Appeal Rights.
A federal tax lien that has been recorded in the California county where you live can be withdrawn if:
The tax lien was filed too soon or when the IRS failed to follow its own rules
You negotiated an installment agreement to pay-off the tax lien amount and releasing the tax lien was part of your mutual agreement
Collecting the tax will be hastened by withdrawing the tax lien, or
Withdrawal would be in the best interest of the government as well as in your best interest (as determined by the Taxpayer Advocate).
With any federal tax lien, you may contact the Collection Technical Services (TS) Advisory function. TS Advisory is a collection compliance function that will discuss with you tax lien issues such as the Certificate of Discharge, Withdrawal, Subrogation, Subordination, Non-Attachment, and other complex lien issues. Publication 4235, Technical Services Advisory Group Addresses should be used to locate the nearest office for help.
Discuss this and other tax problems with Mitchell A. Port, a tax attorney and former IRS employee, by calling 310.559.5259.