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Introduction
Introduction
The idea of getting a tax lien might make you feel nervous, but the good news is that there are several ways to get around it! This article breaks down the 5 different ways people can get rid of a federal tax lien.
What is a federal tax lien?
A federal tax lien is a legal claim by the IRS against your property, including your home, car, or bank accounts, if you owe the government money, up to the amount of the tax you owe. The government can put a tax lien on your property if you don't pay your current tax or if you haven't paid taxes in the past, up to the amount of the tax owed.
If the government puts a tax lien on your property, it means that you owe the government money, and if you try to sell property subject to a federal tax lien, the proceeds from the sale of said property, up to the amount of the tax owed, will go to the government, rather than to you, and the government has a legal right to take your property if you don't pay what you owe. Additionally, a tax lien can make it hard to sell your property or get a loan because potential buyers or lenders will see the lien and may be unwilling to work with you.
If you have a federal tax lien, you should try to pay off what you owe as soon as possible. You can contact the IRS to set up a payment plan or to negotiate an offer in compromise, which is an agreement to pay less than what you owe, if you qualify for this IRS Fresh Start Program. You can get help filling an offer in comprise form with a tax relief company like Coast One Tax Group. If you don't pay your taxes or negotiate an agreement with the IRS, the IRS could eventually seize your property.
When will the IRS file a lien?
The IRS will usually file a lien if you owe more than $10,000 in taxes. If you don't pay your taxes, the IRS will send you a notice that says you have to pay. If you don't pay your taxes after the notice, the IRS will file a Notice of Federal Tax Lien.
When the IRS files a lien, it's important to know that the Notice of Federal Tax Lien is a public record. This means that anyone can see that the IRS has filed a lien against you. The IRS can also put a notice of the lien on your credit report. This can make it difficult to get loans or lines of credit.
If the IRS files a lien, you'll need to pay off your tax plus interest and penalties. If you are unable to pay off your tax in full, you'll need to work with the IRS to create a payment plan. If you don't pay your taxes, the IRS can take action to collect the money you owe, such as garnishing your wages or seizing your property.
In summary, if you're facing a federal tax lien, there are some things you can do to try to resolve the situation. You can try to get the lien released by paying your taxes in full or by showing that the IRS made a mistake when it filed the lien, or you can contact the IRS and try to negotiate a payment plan.
5 ways to get around an IRS tax lien?
1. Pay in Full
The simplest—but often hardest—strategy is to pay off your tax debt in full. The IRS should release the lien within 30 days after your tax debt is paid off. However, the lien may hurt your credit score, making it harder for you to get a loan to pay off your tax balance.
2. Subordinate the Lien
Each security interest in an asset has its own spot in line. For example, your primary mortgage lender has the first spot in line and may be followed by the IRS tax lien. A lien subordination is like giving up your spot in line.
The IRS agrees to move back a spot, which allows a new lender to take its place. You can get a lien subordination by paying the IRS an amount equal to the interest being given up.
3. Discharge the Lien
A lien discharge completely removes the federal tax lien from an asset. If you want to sell the asset, you’ll need to get a discharge instead of a subordination.
Like a subordination, a discharge requires you to pay off the IRS or otherwise make the IRS feel secure about the government’s interest in your property. If your remaining property is worth more than twice the lien amount (the amount you owe the IRS), the IRS may consider discharging the lien from one asset.
4. Direct Debit Installment Agreements
The IRS likes Direct Debit Installment Agreements (DDIA) because taxpayers don’t have to remember to send a check each month. Some taxpayers who use DDIAs may also qualify to request a lien withdrawal.
If you owe over $25,000, you’ll have to pay your balance down below this amount first, in order to qualify for a lien withdrawal. You also must meet certain other conditions, such as setting up a 60-month Direct Debit Installment Agreement and making at least three consecutive direct debit payments, and filing IRS Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien.
5. Challenge the Lien
Sometimes the IRS gets overzealous when filing a lien. For example, the IRS may file the lien before sending the required notices to the taxpayer.
Tax relief options
If you owe money to the IRS, you may be facing a federal tax lien. This is a legal claim against your property, which gives the IRS the right to collect the money you owe from the sale of your property.
There are some options available if you find yourself in this situation. You may be able to negotiate a payment plan with the IRS. This would allow you to pay off your debt over time, without having to sell your property.
Another option is to file an Offer in Compromise (OIC), which, if you qualify for an Offer in Compromise, Coast One Tax Group can help you to file. This is a settlement offer to the IRS where you offer to pay less than the full amount you owe, and the IRS accepts the offer. The IRS will consider your financial situation and decide if it is in the government’s best interest to accept your offer.
If you are unable to pay off your debt, you may be able to have the tax lien removed from your property. This can be done through a process called subordination. In this process, the IRS agrees to allow another lender to take priority over them when it comes to collecting your debt. Alternatively, you may be able to petition for a discharge of the federal tax lien. Like a subordination, a discharge requires you to pay off the IRS or otherwise make the IRS feel secure about the government’s interest in your property. If your remaining property is worth more than twice the lien amount (the amount you owe the IRS), the IRS may consider discharging the lien from one asset
Conclusion
There are a few ways to get around a federal tax lien, but it's important to remember that the IRS always has the right to collect any unpaid taxes. If you're struggling to pay your tax, it's best to contact the IRS directly and work out a payment plan. However, if you're unable to reach an agreement with the IRS... Coast One Tax Group can help you with tax liens and other IRS tax problems. Call us at 800-599-8548 for a FREE consultation with one of our senior tax professionals!
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