IRS federal tax lien release and discharge rules

March 1, 2023 | Tax Liens


An IRS tax lien is a kind of security interest granted over a property to secure payment of the debt. We can assist with obtaining a Release a Federal Tax Lien. A tax lien on a property is imposed to secure payment of tax debt. A tax lien may be imposed against delinquent taxes against property or on account of failure to pay taxes. In the United States a federal tax lien may be raised in connection with any kind of federal tax. IRS can have a legal claim to your property as a security or payment for tax debts through a lien. IRS will file a Notice for a Federal Tax Lien only after the liability of the taxpayer is assessed IRS sends a “Notice and Demand for Payment bill informing the taxpayer how much tax is due If the payer refuses to fully pay the debt within 10 days of receiving the notice Once these steps are completed, a lien is issued for the amount of the tax debt. When IRS files a tax lien, all the creditors are notified about the claim against all property by IRS, including property that is acquired after the lien was filed.

Some Methods to Release a Tax Lien

IRS issues a Release of the Notice of Federal Tax Lien within 30 days of the payer paying off the tax debt (including interest and other additions) or has the debt adjusted, and that can be collected by private debt collectors the payer submits a bond guaranteeing payment of debt. If after 10 years, the IRS has not obtained a judgment, or has not filed another tax lien then the lien gets released automatically. We can obtain a Release a Federal Tax Lien if a release for tax lien is negligently not filed in time, the payer can file a suit. The case filed will be against the federal government and not against the employees of the IRS. However, this is not a good option as the tax lien will show on your credit report.

Possible Options:

1. Release a Federal Tax Lien, 2. Payoff the Entire Amount. If the entire amount of back taxes is paid off, the lien is released, and the payer can get back into good terms with IRS, or 3. Apply for a Discharge of a Tax Lien. By giving up the property such as selling off the house, the payer can apply for a Certificate of Discharge. Every application for a certificate of discharge releases the lien against that property. IRS Lien Can Be Made Secondary to Another Lien, and Subordination is also an alternative where you can make the federal tax lien secondary to another lien. Some other options are to setup a payment plan with IRS, offered in compromise or post a bond. When is a Lien Withdrawn? It can be withdrawn in the following cases provided that it is a filed notice of a tax lien. If there is an agreement on the payment being made in installments to clear off the debt on the lien If the notice was filed incorrectly and not as per the IRS procedures Withdrawal will speed collection of tax If the payer proves that withdrawing the lien is in the best interest for the government as well as the payer.

Overview Lien Discharge

IRS federal tax lien discharge comes into play once you want the lien off your credit record. When a taxpayer owes the Internal Revenue Service (“IRS), they can enter into a payment plan to pay the taxes owed. Often, under this scenario the IRS may file a federal tax lien to protect their interest in case the payment plan defaults. The federal tax lien is against the assets of the taxpayer, such as real property or personal property. Examples of assets that the lien would go against include the taxpayer’s vehicles, real property, and personal property. Just for clarity, a federal tax lien comes about when you have unpaid taxes. In cases where that unpaid tax amount reaches certain dollar amount thresholds, the IRS will file a notice of federal tax lien to establish its lien status against other creditors, such a mortgage on real property by a bank. Typically, this is important since it matters when the lien has been filed, since the liens typically have to be paid off in the order they were filed. Therefore, if you first, you would be paid off before a lien filed after you.

Tax Lien Discharge

From a practical perspective, if there is a notice federal tax lien, it most likely has it most negative impact on real property since it’s rare that a taxpayer would sell a vehicle or other personal property and the lien issue even be raised by the IRS or the purchaser. This is not the case for real property since title insurance causes an analysis of the properties title, and tax liens would show up on the lien search and would have to be paid off at closing. Therefore, you might ask what do you do if the proceeds of the property sale are not sufficient to pay of the tax lien in full, but you still want to sell the property? The answer to that question is that by filing Form 14135, Application for Certificate of Discharge of Property from Federal tax Lien, which asks the IRS to discharge the tax lien from a particular piece of real property in exchange for the fair market value of the IRS’s interest in that real property. T complete the application, you need to attach the deed to the property, an appraisal, county valuation, contract of sale, the title report, and proposed closing statement. Be careful with the appraisal since the IRS will use that report to justify the monies it receives in the sale. This can sometimes be problematic since if the appraisal was ordered for the bank to justify the loan amount, it will typically be appraised at a value very close to the contract price. When this is a problem is when the seller, in order to entice a buyer, offers a seller’s concession by inflating the selling price and then the bank loan is paying for the closing costs which helps the buyer. From the IRS perspective, they sometimes see the higher selling price (over fair value) and want that amount. In most cases we can correct their misunderstanding on this issue, but it is a item to pay attention to if you are looking to discharge a tax lien and also offer a seller’s concession. Once the deal is done, to get the actual tax lien discharge a copy of the new deed to the purchaser has to be recorded and shown to the IRS, along with the final closing statement and a check for the proceeds. IRS federal tax lien discharge can be a tricky process, but often worth the effort.

Attorney Timothy Hart

Timothy S Hart, the founding partner of the tax law firm of Timothy S. Hart Law Group, P.C. is both a New York Tax Lawyer & Certified Public Accountant. His area of expertise includes innovative solutions to solve your Internal Revenue Service and New York State tax problems, including tax settlements through the Federal and New York State offer in compromise programs, filing unfiled tax returns, voluntary disclosures, tax audits, and criminal investigations. [ Attorney Bio ]