Before I answer this question, is important to understand the following definitions regarding liens:
A “tax lien” means a taxing authority has a claim against all of the taxpayer’s rights to property.
A “filed tax lien” means the taxing authority filed a public notice stating a taxpayer owes tax liabilities.
The taxing authority usually files the public notice in the taxpayer’s county of residence for individuals or taxpayer’s county of registration for businesses.
Although the IRS stopped reporting tax lien filings to the major credit bureaus, many lenders check to see if any party filed liens against a borrower.
A “lien release” means the taxing authority has no interest against taxpayers.
A lien release basically means the taxes covered by the liens are satisfied (e.g., paid off, settled, or the taxing authority wrote off taxes because the collection statute of limitations expired).
A “lien withdrawal” means the taxing authority only removed its public notice of its filed lien but the taxing authority still has an interest against the taxpayers.
A lien withdrawal basically means the taxes covered by the lien are still owed but the taxing authority no longer wishes to publicly disclose this.
With these definitions in mind, the short answer is yes, in certain cases, as outlined below, the IRS will release or withdraw a tax lien. Note, each state’s taxing authorities’ rules, regulations, and laws vary widely on whether it will remove a tax lien; so, in an effort to avoid writing a 500-page article, I will only discuss ways to remove IRS tax liens.
Also note, this may be obvious, but it is much easier to avoid a tax lien filing in the first place than it is to remove a filed tax lien. However, the reality is that for many people the tax lien issue fails to come to light until it is too late—a person may have no idea what a tax lien is until the taxing authority files the lien.
Lien Withdrawal. The IRS may withdraw its lien in the below cases. I emphasize may withdraw because the IRS can refuse to withdraw the filed lien at its discretion. The stronger case you make, the higher chance the IRS will agree to withdraw its filed lien.
1. If the following criteria are met for taxes owed to the IRS by individuals (NOT businesses):
a. Taxpayer pays down total tax liability below $25,000,
b. Taxpayer sets up a six-year term installment agreement,
c. Taxpayer sets automatic withdrawals for the installment payments,
d. Taxpayer pays three consecutive automatic installment payments, and
e. Taxpayer requests a proper lien withdrawal.
2. If the IRS failed to follow its own procedures in filing the lien.
3. If the lien withdrawal will facilitate the collection of the tax liability.
4. If the lien withdrawal would be in the best interest of the taxpayer and the United States.
Lien Release. The IRS must release its lien in the below cases. I emphasize must release because the tax laws require the IRS to do so. If any of the below cases apply, within 30 days, the IRS must issue its Certificate of Release of Federal Tax Lien otherwise the IRS may subject itself to a civil lawsuit from the aggrieved taxpayer.
1) If taxpayer pays the taxes in full including all interest and penalties.
2) If a court discharges the taxes through bankruptcy.
3) If the IRS agrees to settle the taxes by way of an Offer in Compromise and taxpayer fully pays the settlement amount.
4) If the collection statute of limitations expires.
Now that I answered the question of whether a taxpayer can remove a filed tax lien, I will share some examples from my own clients.
Example – The IRS Failed to Follow its Own Procedures. A business sought out our help in resolving its taxes. The IRS had assigned the case to a Revenue Officer. A Revenue Officer is a local IRS agent that will try to collect on the taxes.
Before the client hired us, the Revenue Officer had already filed tax liens against the business. The tax lien filing materially diminished my client’s ability to obtain credit for working capital purposes. In short, the IRS’ lien filing negatively impacted my client’s ability to generate revenue because it could not obtain financing for working capital to carry on operations. As such, based on the above facts, the IRS’ own rules stated that the Revenue Officer should NOT have filed the lien.
When I contacted the IRS, the Revenue Officer initially refused to withdraw the filed lien. Only after citing the particular IRS rules regarding tax lien filings, providing proof that the tax lien negatively impacted my client’s ability to generate revenue, drafting an appeal if the Revenue Officer refused to withdraw the lien, and discussing with the Revenue Officer’s manager, the Revenue Officer finally relented and withdrew the IRS’ filed lien. As you can see, the IRS tries to make things difficult for taxpayers even if the IRS failed to follow its own procedures.
Example – Best interests of the Taxpayer and the United States. An individual hired us to resolve $100,000+ tax liabilities owed to the IRS. In working toward negotiating a partial pay installment agreement (meaning the monthly payments will fail to payoff the taxes within the collection statute period), the IRS will normally file a tax lien even if the IRS places the taxpayer on an installment agreement.
However, after discussing the tax lien filing issue with my client, I discovered the tax lien filing posed a material risk of reducing my client’s ability to generate income. My client was self-employed and relied on using available credit to pay for costs associated with meeting with prospective clients (e.g., travel, lodging, food). Importantly, my client’s credit agreements stated that the lending companies regularly checked my client’s credit worthiness including lien filings to determine whether to continue extending credit and whether to increase their interest rates. I argued with the IRS, among other things, that if my client’s income decreased, my client could not pay her living expenses including her current federal income taxes. In short, the lien filing was neither in the best interests of my client nor the IRS.
After I held a meeting with an IRS collection manager, the IRS agreed to not file the tax lien. Although this is an example of preventing a lien filing, it still shows how to use the best interest rule.
Example – Taxpayer Pays the Taxes in Full. One of my clients was in the process of purchasing a home and the mortgage lender required my client to remove the tax liens before approving the loan.
* Note, that each lender is different (some may approve a loan regardless of whether the IRS filed tax liens against the borrower).
In any event, my client owed taxes for multiple periods. However, the IRS had only filed liens for some of the tax periods. In order for the IRS to release its filed liens, my client only needed to pay off the tax periods with filed liens, not the total taxes owed. Within 30 days after my client paid off the tax periods with filed liens, the IRS issued its Certificate of Release of Federal Tax Lien. As such, the mortgage lender approved my client’s loan.
Note, that the IRS may file a tax lien at any time after the IRS (1) assesses the taxes, (2) gives notice of taxes due to taxpayer, and (3) demands payment from the taxpayer. The IRS easily meets these three conditions. For instance, you receive notice of taxes due and the IRS demands payment the moment you file your Form 1040 (the Form 1040 will both show if taxes are due and state you must pay the taxes due). The IRS assesses the taxes the moment it posts the Form 1040. In short, simply filing a return with taxes due will give the IRS the right to file a tax lien as soon as it posts the return.
In reality, the IRS usually waits to send multiple collection notices before it files a lien which can take months and months. Also, the IRS sometimes neglects to file a lien—yes, the IRS sometimes fails to follow its own procedures to its own detriment.
Please note, because a tax lien filing is public record, unfortunately, solicitors hound these public records to look for lien filings. Once these solicitors find tax lien filings, they will try contacting you to sell you whatever it is they want to sell. Some of these solicitors use questionable sales tactics by sending you threatening Non-IRS letters that make it sound as if the IRS is going to take collection action if you fail to respond to the solicitor.
If you need assistance with resolving tax issues including the removal of a tax lien, call Fortress Tax Relief. We have caring and knowledgeable professionals and staff, who would be happy to answer any questions you might have, and to outline a solution tailored to your specific needs and circumstances. There is no charge for a telephone consultation, so pick up the phone and give us a call!