A Federal Tax Lien or State Tax Lien gives the IRS, California Franchise Tax Board, or your State Department of Taxation a legal claim to your property as security or payment for your tax debt. A Notice of Federal Tax Lien may be filed only after:
- IRS assesses the liability;
- IRS sends you a Notice and Demand for Payment – a bill that tells you how much you owe in taxes; and
- You neglect or refuse to fully pay the debt within 10 days after we notify you about it.
Once these requirements are met, a lien is created for the amount of your tax debt. By filing notice of this lien, your creditors are publicly notified that the IRS or State have a claim against all of your property, including property you acquire after the lien is filed. This notice is used by courts to establish priority in certain situations, such as bankruptcy proceedings or sales of real estate.
The lien attaches to all your property (such as your house or car) and to all your rights to property (such as your accounts receivable, if you are a business).
Once a lien is filed, your credit rating will be harmed. You may not be able to get a loan to buy a house or a car, get a new credit card, or sign a lease for an apartment. Many employers also review your credit report as a requirement for employment. Therefore it is important that you work to resolve your tax liability as quickly as possible, before lien filing becomes necessary.
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Releasing a Tax Lien Direct Tax Relief can negotiate a settlement of your back taxes through an Offer in Compromise. When the accepted Offer amount is paid in full, DTR will have your lien released within 30 days. The IRS will then issue a Release of Notice of Federal Tax Lien. Another solution to releasing an IRS tax lien is when the collection statute expires. Usually 10 years after a tax is assessed, a lien releases automatically, if the government does not file it again and if the taxpayer has not filed certain documents with the IRS to extend the statute. The tax experts at DTR will retrieve all of your IRS transcripts in order to analyze and interpret them and decide which tax solution works best for you.Withdrawing a Tax Lien By law, a filed notice of tax lien can be withdrawn if:
- The notice was filed too soon or not according to IRS procedures,
- You entered into an installment agreement to pay the debt on the notice of lien (unless the agreement provides otherwise),
- Withdrawal will speed collecting the tax, or
- Withdrawal would be in your best interest (as determined by the Taxpayer Advocate), and in the best interest of the government.
Appealing the Filing of a Lien
The law requires the IRS to notify you in writing not more than 5 business days after the filing of a lien. They may give you this notice in person, leave it at your home or your usual place of business, or send it by certified or registered mail to your last known address. You may ask an IRS manager to review your case, and you may request a Collection Due Process hearing with the Office of Appeals by filing a request for a hearing with the office listed on your notice. You must file your request by the date shown on your notice. Some of the issues you may discuss include:
- You paid all you owed before the lien was filed,
- You were assessed the tax and the lien was filed when you were in bankruptcy, and subject to the automatic stay during bankruptcy,
- The IRS made a procedural error in an assessment,
- The time to collect the tax (called the statute of limitations) expired before the IRS filed the lien,
- You did not have an opportunity to dispute the assessed liability,
- You wish to discuss the collection options, or
- You wish to make spousal defenses.