Frequently Asked Questions Concerning Tax Liens What is the significance of a Federal Tax Lien

Frequently Asked Questions Concerning Tax Liens

What is the significance of a Federal Tax Lien?

A Notice of Federal Tax Lien can be filed once IRS determines that there is a failure to pay all the tax that is due and assesses a deficiency. As explained elsewhere, this, "Date of Assessment" is a very important point in time because it triggers the commencement of the time period covered in the Statute of Limitations.

From this point forward, regardless of whether or not legal notice of the lien has actually been filed in the appropriate county court house, IRS has the power - once all required notices and demands have been made - to levy the taxpayer's real, personal, or intangible property (bank accounts, wages due, etc.). If the IRS determines that collection of the tax is in jeopardy (for example, it believes you're hiding assets or are about to flee the country), it does not need to provide you with such notices and demands before seizing your property, and will move quickly.

It is important to note that the purpose of filing a Federal Tax Lien (in the appropriate county court house) is so IRS can give notice to the public of the lien's existence, not to activate it. Once on record, the title to any real estate the taxpayer owns that is located in that county will effectively be frozen from that point forward until the lien is either released or subordinated (such as in a re-financing). It is a common practice for IRS to also file a Notice of Federal Tax Lien in any other counties where it believes you may own real property.

While the seizure of real estate is more difficult for IRS to accomplish than, say, the levy of a bank account, it can certainly be done, and is a most effective collection tool. Also note that special rules now require a judicial review to be made prior to the seizure of a private residence.

How can I get a Federal Tax Lien released?

There are generally three ways for a Federal Tax Lien to be released:

The language contained in its text causes it to automatically self-release when the Statute of Limitations has expired. This is usually ten years after the date the tax is assessed, but, as described elsewhere, this time period can be extended by the occurrence of various events. In such instance, the taxpayer does not need to do anything other than wait out the Statute of Limitations.
The tax is paid in full or an acceptable substitute bond has been provided, in which case IRS is required to provide a Notice of Release of Federal Tax Lien (Form 668) to both the taxpayer and the courthouse(s) where it has been filed within 30 days thereof. If the payment was made with cash or its equivalent, the lien can be released immediately.
The terms and conditions contained in an Offer in Compromise have been fulfilled. In this instance, it is best for the taxpayer to specifically request that IRS issue a Notice of Release of Federal Lien (Form 668). Make sure you also file a copy in the appropriate county courthouse(s).

How can I get a Federal Tax lien subordinated to a mortgage loan so I can refinance my real estate?

IRS will subordinate its lien priority to other creditors when any one of the following conditions exist:

There is no value to IRS in the property or the economic transaction anticipated; or,
the taxpayer substitutes other real estate as collateral that has at least twice the value of the amount of the tax lien; or,
the IRS receives whatever equity exists in the real property.

How can I get the credit bureau to take a Federal Tax Lien off my file once it's paid?

Unfortunately, neither you nor IRS can do this. Once it's filed, it will stay on record for the statutory period of ten years. However, if you have paid the tax in full, you can obtain a copy of a Notice of Release of Federal Tax Lien (Form 668) from IRS by requesting one, and forward it to the Register of Deeds office in the county where the lien is on record so it can be filed. This procedure will vary somewhat from state to state. Then send copies of it to each of the major credit bureaus (Equifax, TransUnion, and Experian-TRW) so they will know the tax has been paid and the lien released.

While the original lien notice will still show up and affect your credit score, its subsequent release will help somewhat, and should certainly improve your legal position.

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