The Internal Revenue Service (IRS) takes tax debt very seriously, and the agency works through several steps in the debt collection process. The first step involves notifying you of the tax debt and placing a federal tax lien on your assets.
A federal tax lien means the IRS has staked a claim to your assets. This is just like how a lender has a lien on property used as collateral — for instance, if you fail to make your mortgage payment, the bank has the right to seize your property.
A federal tax lien is similar. The government is letting you and creditors know it has a legal claim to your assets. A federal tax lien can damage your ability to get credit, plus give the IRS the right to claim any proceeds you earn when you sell your assets. The IRS may also choose to escalate its collection efforts by turning the lien into a levy, which is the actual seizure of assets.
This guide explains what a federal tax lien release is and how to get one.
What Is a Federal Tax Lien Release?
A federal tax lien release refers to the process of removing your tax lien. A lien is basically a formal statement that the IRS has a right to claim ownership of your assets, and a release is when the IRS rescinds this statement. There are many ways to release a federal tax lien, and if you want to protect your assets, you need to remove it as quickly as possible before the agency uses the lien to seize them.
When You Should Apply for a Federal Tax Lien Release
Do not wait for the IRS to seize your assets. Take steps to get your tax lien released as soon as you know it exists. You should start the tax lien release process in the following situations:
When You Have a Tax Debt
The IRS will send you a letter if you owe taxes. This can happen if you file a tax return with a balance due and you don’t make a payment. A lien can also occur if the IRS makes a change to your tax return that results in a bill due.
To Protect Your Wages and Assets
A lien is just the agency asserting its right to your assets. It has not seized any assets or garnished your wages, and if you wait until that happens, you won’t be able to reverse the process.
To Get in Good Standing With the IRS
The IRS has plenty of options to help taxpayers get back into good standing. You may be able to get your lien released if you set up a qualifying payment plan, apply for hardship, or make other arrangements.
Tax debt issues are often best addressed by experts, because they are your best chance to resolve them as soon as possible. This is doubly important if the agency has issued a federal tax lien. You may lose your chance to work with the agency if you wait too long to reach out and make arrangements.
3 Ways to Remove Your Federal Tax Lien
There are multiple ways to remove a federal tax lien. Paying your tax debt in full instantly removes your lien and is the quickest option, but of course, not everyone has the funds to cut a check immediately. Here are three other options:
Discharge Your Property
The IRS may be willing to remove your lien so you can sell your property. You must apply for this federal tax lien release at least 45 days before the sale, and the proceeds from the sale cannot be enough to satisfy your tax debt.
Don’t sell your property without getting permission from the IRS, however. The agency may be able to claim the proceeds from the sale if a lien has been issued and you haven’t gotten permission for the discharge
Subordinate the Lien
Lienholders have different priority statuses on your property, and subordination is when the IRS agrees to take a lower position than other credits. This can be essential if you want to buy a home or a vehicle with a new loan. You must apply directly with the IRS.
Make a Payment Arrangement and Request a Withdrawal
A withdrawal is when the IRS removes your tax lien from your assets. You generally need to set up an installment payment plan with direct debit from your bank account to qualify for a withdrawal.
A federal tax lien can do a lot more than just damage your ability to get credit. It attaches to all your assets, including business assets, and when you sell your assets, the IRS can swoop in and grab the proceeds. You need to remove your federal tax lien if you want to protect your bottom line.
Common Mistaking of Removing a Federal Tax Lien
Getting a federal tax lien released can be a complicated process. There are many mistakes a taxpayer can make along the way. Protect yourself by avoiding these common pitfalls:
- Only Focusing on One Tax Year
You need to be compliant with all the IRS’s requirements for the past three years if you want to get your tax lien released.
- Failing to Stay Compliant
You also need to stay compliant with future tax years. Failure to file or pay your bill may put your payment plan in jeopardy.
- Not Working With a Professional
Navigating this process on your own can lead to mistakes and extra costs.
The tax code and the tax debt collection process are extremely complicated. You need to look at the situation in front of you, while also ensuring that you and your business are compliant with other past and future tax obligations.
Get Help Releasing a Federal Tax Lien
A tax debt does not have to ruin your life or cost you unbearable money in fees and penalties. The best approach is to be proactive and reach out to the IRS to make arrangements.
The Silver Tax Group has specialists who can help with all aspects of managing your tax debt, from setting up payments to amending returns, to contesting tax assessments, to removing tax liens, and more. Contact our team today to speak to a tax expert about a federal tax lien release.
