An additional burden is something you don’t need when struggling financially. Especially after unexpected medical expenses and job loss, there is no way you can keep up with your tax obligations. Unfortunately, your problems are compounded further by the IRS placing a tax lien on your property. If you are considering liquidating some of your personal assets to help with your finances, having a tax lien on your property eliminates this option if you need to generate additional funds, even just for survival.
What is a Tax Lien?
A tax lien is a legal claim placed on your property or assets by a taxing authority, such as the IRS, state, or local government, to secure the payment of unpaid taxes. Essentially, it’s a financial anchor that prioritizes the government’s claim over other creditors.
How Do You Know If You Have a Tax Lien?
The IRS will typically notify you of a tax lien through a Notice of Federal Tax Lien. This document outlines the amount of your unpaid taxes and the specific assets or property that are subject to the lien.
Why is a Tax Lien an Additional Burden?
A tax lien can significantly impact your financial well-being in several ways:
- Credit Damage: A tax lien can negatively impact your credit score by appearing on your credit report. This can make obtaining loans, mortgages, or credit cards more difficult, as lenders often view it as a sign of financial instability.
- Asset Seizure: In extreme cases, the government may seize your property to satisfy the tax debt, potentially leading to significant financial loss.
- Limited Financial Flexibility: A tax lien can restrict your ability to sell assets or refinance your property, limiting your financial options.
- Increased Stress and Anxiety: The constant threat of a tax lien can cause significant stress and anxiety, impacting your overall quality of life.
How to Release the Burden of your Tax Lien?
Fortunately, there are six ways the IRS will allow you to release the burden of having a tax lien placed on your property. Depending on the specifics of your situation, you may find one that best fits your situation.
1. Pay Off Your Tax Debt Entirely
While this may not be feasible for everyone, especially those facing financial difficulties, paying off the debt in full is the most direct way to remove a tax lien. The IRS will lift the lien imposed and update existing records indicating that you are released of your obligations. This way, you now have financial flexibility through receiving loans, applying for credit, and selling assets.
2. Arrange an Installment Agreement with the IRS
An IRS installment agreement is a flexible payment plan designed to help taxpayers who owe back taxes but are unable to pay the full amount upfront. This arrangement allows you to break down your tax debt into manageable monthly payments, providing a structured approach to repayment.
Remember, ignoring lien notices can have negative consequences. It’s important to contact the IRS promptly and discuss your options. Working with them directly will help ensure that an installment agreement is the most effective solution for your situation.
3. Receiving a Lien Discharge
An IRS tax lien is a legal claim on your property due to unpaid taxes. To have it removed from a specific property, you may be eligible for a lien discharge. To qualify, certain factors are considered, such as the IRS’s ability to collect the debt more easily if the discharge is granted. The value of your remaining property, if it’s worth twice the value of the lien, is also a critical factor. Additionally, your reasons for seeking a discharge—whether for financing, refinancing, selling, or transferring the property—can influence the IRS’s decision. Understanding these factors can improve your chances of getting a discharge.
The application process involves gathering necessary documents, such as property deeds and proof of income, and completing IRS Form 14135. This form includes detailed information about the property, tax debt, and reasons for requesting a discharge. Supporting documents should also be attached before mailing the application to the IRS. Following the proper steps and submitting a complete application can enhance your chances of success, providing you with financial flexibility by removing the lien from your property.
4. Subordinating Your Lien
Lien subordination refers to changing the priority of an IRS lien so that it ranks below another creditor’s claim, often done to facilitate refinancing a mortgage or securing new loans. This process doesn’t eliminate the lien but increases the likelihood of loan approval by giving another creditor precedence over the IRS. Factors like your financial situation, tax debt, and proposed use of loan funds are reviewed to qualify for lien subordination. The IRS will also assess the repayment plan for your tax debt.
The process starts with a financial assessment, followed by gathering key documents like tax returns, property records, and loan proposals. You’ll then need to complete IRS Form 14134 to formally request subordination. In some cases, additional negotiations with the IRS may be required before approval. Once approved, you’ll receive a Certificate of Subordination, which officially changes the priority of the lien. Having all necessary documents ready and being prepared to address IRS inquiries can help streamline this process.
5. Getting a Lien Withdrawal
An IRS tax lien can hinder your financial flexibility, making it difficult to obtain loans, mortgages, or credit cards.However, under certain conditions, it’s possible to get a lien withdrawn. To qualify, you must fully pay off your tax debt, file all required tax returns for the last three years, and make any estimated tax payments. Once these conditions are met, you can request an IRS lien withdrawal by submitting Form 12277. This process can improve your financial standing by ensuring the lien is removed from public records.
The withdrawal process starts with full payment of your tax debt, followed by a request for a “Release of Federal Tax Lien” from the IRS. Once the release is obtained, you must file IRS Form 12277, attaching any required documentation to support your request. The IRS will review your submission and decide whether to approve or deny your request. If approved, the IRS will notify credit reporting agencies about the withdrawal, which may improve your credit score over time. Acting promptly and consulting a tax professional can increase the chances of success and smooth the process.
6. Appealing Your IRS Tax Lien
If you believe that the IRS tax lien placed against you is incorrect or unfair, you can appeal the decision. Common grounds for appeal include full payment of the tax debt before the lien was filed, errors in the filing process, or if the statute of limitations for collecting the debt has expired. Other valid reasons include the lien being placed on the wrong person, not receiving proper notice of your rights, or if you qualify for innocent spouse relief. Maintaining records of your tax filings and payments is crucial when appealing a lien.
You have two primary methods for appealing an IRS lien. The first is through the Collection Appeals Program (CAP), which is an informal process where you file Form 9423 within 30 days. CAP typically offers a faster resolution. The second option is a Collection Due Process (CDP) hearing, which is a formal procedure requiring you to file Form 12153 within 30 days. This hearing provides a more thorough review, and further appeals to the Tax Court may be possible. To improve your chances of success, act promptly, gather all necessary documentation, and consider seeking assistance from a tax professional.
Removing an IRS tax lien can be challenging, but it’s not impossible.
There are several strategies you can pursue, depending on your circumstances.
Save Thousands of Dollars in Tax Firm Fees: Trust Automated Tax Credits to Simplify the Process for You
Automated Tax Credits can help you navigate these processes and potentially save you thousands in tax firm fees. Our easy-to-use platform will help you through the steps, from determining your eligibility to preparing and submitting the necessary paperwork.
Don’t let an IRS tax lien hold you back. Contact us today to explore your options and start taking control of your financial future.
Master Tax Debt Resolution for Just $9!
Join our exclusive video course led by a former IRS agent and a seasoned tax accountant. Discover essential strategies to tackle IRS penalty abatement, installment agreements, and tax lien resolution. Learn from experts who have helped countless individuals save thousands of dollars on their tax debt.
Don’t let tax debt stress you out any longer. Take control of your financial future today!
