A Federal Tax Lien is a first right the IRS lodges over a taxpayer’s property. This property may include personal assets, financial investments, and real estate. Essentially, the taxpayer’s property ‘belongs to the government’ in the sense the person bound over by the lien may neither borrow against it, nor sell it. This is not a helpful situation in which to find oneself. It could also dent our reputation in the event an interested party stumbles over the public document.
How a Federal Tax Lien Cramps Us Financially
As mentioned, the lien attaches everything we own, including vehicles, property, and securities. Moreover, it automatically incorporates any new assets we acquire while in force. This may restrict our access to credit. Furthermore, a Federal Tax Lien over a business includes our accounts receivable. Unfortunately, this is not the end of the story.
We cannot escape the net by filing for bankruptcy. The Federal Tax Lien continues regardless. Clearly, we need to find a way out of the impasse, to relieve the pressure, completely or to some extent.
How to Get Rid Of a Federal Tax Lien, or to Soften the Impact
We will move quickly on from the option of simply settling the debt, and seeing the lien uplifted after 30 days. We figure you would not be reading this if you were in a position to do so.
Unfortunately, this is the only way to get rid of a Federal Tax Lien completely. However, here are some things to consider that could make it less onerous.
- Obtain a Certificate of Discharge of Property. This has the effect of removing a particular asset from the restrictions of the lien. You may succeed, if the encumbered assets remaining are worth at least double your tax obligation. Alternatively, you may offer to make a part payment in order to satisfy the requirement.
- Apply for a Certificate of Subordination. This moves a nominated creditor ahead of the IRS in terms of rights over a particular asset. This may make it easier to obtain a loan or mortgage. Similar to the Certificate of Discharge of Property, the IRS requires a matching part payment appropriate to the value of the asset subordinated.
- Request a Withdrawal of Filed Notice. This procedure rescinds the public Notice of Federal Tax Lien.
However, it does not cancel out the tax debt, although it may make other creditors rest easier at night. Approval is a subjective process. It depends on how well you motivate your request. You may benefit from consulting an adviser who has trod the path before.
A Federal Tax Lien is not the same as a Levy. A Levy settles a tax debt by seizing suitably valued property belonging to a taxpayer. A levy may result from their failure to settle their tax debt, or honor an agreed repayment plan. The key to avoiding this is honoring your obligations under Federal Tax Law. Consider appointing an experienced adviser if you believe you could benefit from expert advice.
Do you owe more than $10,000 in back taxes? Protect yourself. Protect your business. Contact IRS Solver for a consultation.