What an IRS tax lien actually does, and how to get it released or withdrawn

The lien and the notice are two things

The lien itself arises automatically once a tax is assessed, a bill is sent and the balance is not paid. It exists by law, without any filing, and attaches to property you own now and property you acquire later. The Notice of Federal Tax Lien is the public filing at the county that tells other creditors the IRS is in line. The IRS generally does not file it when the unpaid balance is under $10,000, although it can when that protects the government's interest. After a filing you receive a letter that shows the date by which you can request a hearing, about 30 days.

What the lien does, and does not do

• A filed notice appears in title searches, so it can complicate or delay a sale or refinance until it is addressed.
• It no longer appears on credit reports, since the credit bureaus removed tax liens in 2018. Mortgage lenders still find it in public records.
• It does not take money or property. A levy is the action that does that, and it generally follows a final notice with hearing rights.
• It lasts until the balance is paid or settled, or until the collection period ends, generally ten years from assessment with extensions.

What are the four ways to deal with a federal tax lien?

Payment and release, discharge, and subordination are different options, and they are not interchangeable. Each has its own conditions and its own form.

Release

A release is the lien ending. The IRS must issue it within 30 days after the balance is paid in full or is no longer legally enforceable, or after it accepts a bond for the amount. A lien also releases itself when the collection period expires and the notice has not been refiled. A release leaves a public record that the lien existed and was satisfied.

Withdrawal

A withdrawal removes the public notice as if it had not been filed. Withdrawal itself does not cancel the tax debt, and it can also be requested after the lien has been released. It is discretionary: the IRS may withdraw a notice that was filed too early or not in line with procedure, when you enter into an installment agreement, when withdrawal will help collection, or when it is in the best interest of both the taxpayer and the government.

Two situations come up most. The first is a direct debit installment agreement for a balance of $25,000 or less that will be paid within 60 months or before the collection period ends, once three consecutive direct debit payments are made and your other filings and payments are current. The second is a lien that has already been released, when you have been in compliance for the past three years. The request goes on Form 12277.

Which option fits a sale or a refinance?

The transaction decides. If the sale pays the balance in full, the lien is released after payment. If it does not, a discharge removes the lien from that one property so the buyer gets clear title. A discharge does not always require payment from the sale proceeds: the IRS can also grant one when its claim on the property has no value, for example because the debts that rank ahead of it are larger than the sale price, or when the other property still covered by the lien is worth at least twice the tax debt and the debts ahead of it. A subordination leaves the lien in place and lets a new lender go ahead of the IRS, which is what a refinance usually needs.

Each one is an application with its own form, Form 14135 for a discharge and Form 14134 for a subordination, plus supporting documents, and the IRS can approve or deny it. The IRS asks you to submit it at least 45 days before the date the certificate is needed. That is recommended lead time, not a guaranteed processing period, so start as soon as there is a contract or a lender commitment.

What to do when the notice arrives

Use the 30-day hearing window if the filing was wrong or if an agreement would have avoided it. Otherwise, put the resolution in place: a direct debit payment plan can open the way to a withdrawal for balances of $25,000 or less, and it stops the lien from being the thing that decides your next move.

Every situation is different and results depend on the facts of each case. This guide is general information, not advice on your file. The complimentary 15-minute introductory call is where your facts come in.