Recent changes to tax collection procedure established by the Internal Revenue Service (IRS) “Fresh Start” Initiative have now made it possible to often prevent federal tax liens or have existing tax liens by the IRS withdrawn.
What is a Federal Tax Lien?
The federal tax lien is one of many tools used by the IRS to help secure your tax debt. The tax lien is a claim against your property, including property that you acquire after the lien is filed. By filing a Notice of Federal Tax Lien (Form 668), the IRS publicly establishes its interest in your property as a creditor in competition with other creditors in certain situations, such as bankruptcy proceedings or sales of real estate. The tax lien will generally appear on your credit report and harm your credit rating. Once a lien is filed, the IRS generally will not release the lien until the taxes, penalties, interest, and recording fees are paid in full or the IRS may no longer legally collect the tax.
Tax Liens Are Often Ineffective
It has been stated that the filing of a federal tax lien is sometimes ineffective. In many cases, the filing of the federal tax lien does little to encourage the payment of tax debt especially where the taxpayer owes other creditors as well. Nonetheless, the filing of a Notice of Tax Lien serves to help secure the government’s interest by establishing the government’s priority in receiving payment before other creditors. The filing of a tax lien will almost always injure the taxpayer by lowering credit scores resulting in higher interest rates for amounts borrowed, or simply eliminating the ability for taxpayers to borrow funds needed to pay their taxes or other obligations. It is for these reasons that the IRS aggressive use of liens has been criticized by both the National Taxpayer Advocate and the IRS Advisory Council.
The Tax Lien Filing Threshold
In response to recent criticisms, the IRS has somewhat relaxed its position on when it will file a federal tax lien. The Fresh Start Initiative changes increase the IRS Notice of Federal Tax Lien filing threshold from $5,000 to $10,000. Notices of Federal Tax Liens may still be filed on amounts less than $10,000 when circumstances warrant.
Easier Tax Lien Withdrawals
The IRS has changed procedures to make lien withdrawals easier. Liens will now be withdrawn once the full payment of taxes is made and the taxpayer requests it (in writing). Lien withdrawals are not automatic. To obtain a lien withdrawal on qualifying tax debt, you must be in compliance for the past three years in filing all individual and business returns and be current on any applicable estimated tax payments and federal tax deposits.
Direct Debit installment Agreement and Liens
The IRS has also changed procedures to withdraw tax liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement. If you are a qualifying taxpayer with tax assessments of less than $25,000 you may have your filed Notice of Federal tax Lien withdrawn after entering into a Direct Debit installment agreement. If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting the lien withdrawal to be eligible. Your Direct Debit Installment Agreement must full pay the amount you owe within the earlier of 60 months or before the Collection Statute expires. You must be in full compliance with other filing and payment requirements. You must have made three consecutive direct debit payments. You cannot generally have previously received a lien withdrawal for the same taxes. You cannot have defaulted on your current, or any previous, direct debit installment agreement. If you are currently on a regular installment agreement, you may convert to a Direct Debit Installment Agreement.
Tax Liens for Homeowners
Another way individuals may obtain tax lien relief is where the tax lien prevents a homeowner from refinancing or renegotiating a loan secured by a mortgage. In these cases it may be possible to have the IRS take a second position on the lien, therefore giving the lender a priority position on the debt to allow for refinancing the loan.
Withdrawal of Tax Liens
If a tax lien is pending, it is important that you take affirmative steps to stop a tax lien before it is filed. In those cases where a tax lien has already been filed, corrective measures are often limited to have a tax lien withdrawn as outlined above.
Once the taxes owed are paid a tax lien should be released automatically roughly 30 days after, but in many cases is often not. In most cases, a released (satisfied) tax lien remains on your credit report. In certain cases, you can opt to have the lien fully withdrawn thereby allowing the complete removal of the tax lien from your credit report upon appropriate notification to the credit reporting bureaus. For additional information on how we can help you, simply call (305.567.3152) or contact us to ask about our affordable lien withdrawal services.