A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:

• Puts your balance due on the books (assesses your liability);

• Sends you a bill that explains how much you owe (Notice and Demand for Payment); and you

• Neglect or refuse to fully pay the debt in time.

The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property.

How to Get Rid of a Lien

Paying your tax debt—in full—is the best way to get rid of a federal tax lien. The IRS releases your lien within 30 days after you have paid your tax debt.

When conditions are in the best interest of both the government and the taxpayer, other options for reducing the impact of a lien exist.

Discharge of property

A "discharge" removes the lien from specific property. There are several Internal Revenue Code (IRC) provisions that determine eligibility.

Subordination

"Subordination" does not remove the lien but allows other creditors to move ahead of the IRS, which may make it easier to get a loan or mortgage. To determine eligibility, refer to IRS Publication 784, Instructions on How to Apply for a Certificate of Subordination of Federal Tax Lien.

Withdrawal

A "withdrawal" removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for your property; however, you are still liable for the amount due.

For eligibility, refer to Form 12277, Application for the Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien (Internal Revenue Code Section 6323(j)).

Two additional Withdrawal options resulted from the Commissioner’s 2011 Fresh Start initiative.
One option may allow withdrawal of your Notice of Federal Tax Lien after the lien’s release. General eligibility includes:

Your tax liability has been satisfied and your lien has been released; and also:

• You are in compliance for the past three years in filing—all individual returns, business returns, and information returns;

• You are current on your estimated tax payments and federal tax deposits, as applicable.

The other option may allow withdrawal of your Notice of Federal Tax Lien if you have entered in or converted your regular installment agreement to a Direct Debit installment agreement. General eligibility includes:

• You are a qualifying taxpayer (i.e. individuals, businesses with income tax liability only, and out of business entities with any type of tax debt)

• You owe $25,000 or less (If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting withdrawal of the Notice of Federal Tax Lien)

• Your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier

• You are in full compliance with other filing and payment requirements

• You have made three consecutive direct debit payments

• You can’t have defaulted on your current, or any previous, Direct Debit Installment agreement.

How a Lien Affects You

• Assets—A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.

• Credit—Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.

• Business—The lien attaches to all business property and to all rights to business property, including accounts receivable.

• Bankruptcy—If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.

Avoid a Lien

You can avoid a federal tax lien by simply filing and paying all your taxes in full and on time. If you can’t file or pay on time, don’t ignore the letters or correspondence you get from the IRS. If you can’t pay the full amount you owe, payment options are available to help you settle your tax debt over time.

Lien vs. Levy

A lien is not a levy. A lien secures the government’s interest in your property when you don’t pay your tax debt. A levy takes the property to pay the tax debt. If you don’t pay or make arrangements to settle your tax debt, the IRS can levy, seize, and sell any type of real or personal property that you own or have an interest in.

In Pennsylvania, as in other states, a federal tax lien represents the U.S. government's legal claim against an individual's property when they fail to pay tax debts. The lien is established after the Internal Revenue Service (IRS) assesses the taxpayer's liability, sends a bill, and the taxpayer does not pay the debt. The IRS then files a Notice of Federal Tax Lien, which alerts other creditors to the government's legal right to the taxpayer's assets. To remove a federal tax lien, the taxpayer must pay the debt in full, leading the IRS to release the lien within 30 days. Alternatives to full payment include applying for a discharge of property, which removes the lien from specific property; subordination, which allows other creditors to take precedence over the IRS claim; and withdrawal, which eliminates the public notice of the lien but does not absolve the debt. The IRS's Fresh Start initiative provides additional options for lien withdrawal, such as after a lien release or when entering into a Direct Debit installment agreement under specific conditions, like owing $25,000 or less and making three consecutive direct debit payments. It's important to note that a lien can impact credit, business operations, and asset ownership, and may continue even after bankruptcy. To prevent a federal tax lien, taxpayers should file and pay their taxes promptly or arrange a payment plan with the IRS. A lien is different from a levy; the former secures the government's interest in the property, while the latter involves the actual seizure of property to satisfy the tax debt.