Filing of Tax Lien Notice

When a taxpayer owes the IRS,  the tax laws create a tax lien that needs to be satisfied before it is extinguished. When balances owed reach certain limits, and after the IRS demands that you pay the tax debt, and the tax debt remains unpaid, the Internal Revenue Service will file a public notice that the tax lien exists. The notice is called Notice of Filing of Tax Lien (NFTL).

Many clients ask what the notice filings means from a practical perspective, and how it will effect them in the daily lives. The lien the IRS files is similar in concept to a bank filing a mortgage. It gives the IRS priority over other creditors who file later in time in case the property is foreclosed (by the bank or IRS) or sold.  The notice is filed in your county clerk’s office. The tax lien filing, even if the property is not sold will affect you since the notice has a negative effect on your FICO score. The reduction of  your credit score then makes borrowing money (for a car, etc) more expensive since the banks will charge more interest due to a lower credit score. Once the IRS files the tax lien, if you file for bankruptcy, the tax lien will often continue and be a valid issue and not  extinguished in the bankruptcy. The tax lien attaches to almost all property, such as real estate, personal property, cash, stocks, vehicles, and future acquired assets.

Once a tax lien notice is filed, there are limited methods to get the lien notice removed. First, if the tax amount owed can be reduced below $25,000, and a direct debit payment plan has been established, the IRS will typically agree to remove the notice filing within 30 days if you are otherwise compliant with the tax rules (all tax returns are filed). The other methods that enable the tax lien removed is to file an offer in compromise, and upon acceptance and payment the IRS will remove the lien also within 30 days. The other method that sometimes helps is to ask the IRS to subordinate the tax lien. When the IRS agrees to subordinate the tax lien notice, they allow other creditors to be in front of them and this sometimes makes it easier to qualify for a mortgage. Therefore, since it is difficult to have a notice of tax lien removed after it is filed, and a lien subordination is not always helpful, much effort should be given to avoid the filing.

A tax lien withdrawal (as opposed to release) can happen after the tax lien has been released, and it is where the IRS agrees to remove any records of the tax lien notice filing from the public records. Obviously, the tax lien withdrawal is helpful since it can have the effect of reversing the negative effects the tax lien filing has on your FICO score.

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