If you don’t file your tax returns or pay tax debts after receiving several notices from the Internal Revenue Service, you may end up in the IRS collections process.
One method the IRS uses for collecting debts is putting liens on property.
Finding yourself in a tax lien situation can be stressful, but you do have a few options to resolve the lien.
Learn about four ways of getting rid of an IRS tax lien below:
1. Pay the Tax Debt in Full
If you no longer owe the IRS any money, there is no reason to keep the lien on your property. In fact, they cannot legally maintain a lien after you have paid your taxes in full, so this is the most straightforward way to get rid of a tax lien.
Paying your tax debt in full means paying off the entire amount you currently owe, including any penalties and interest that accrued.
You might choose to pay the entire balance due if you have the money to do so, or you can sign up for an IRS payment plan, such as an installment agreement or Offer in Compromise.
For payment plans, the IRS lien will stay in place until you pay the full amount you owe per the agreement.
2. Lien Discharge of Property
The IRS may decide to discharge a lien under certain circumstances. This removes the lien from the property, which gives you more freedom to sell the property. It does not, however, discharge the tax debt—you still owe the money to the IRS.
You have to apply for a Certification of Discharge (PDF Link) from the federal tax lien and meet the requirements for this option. The IRS may discharge the lien in cases when the proceeds of the sale are being used to pay the tax debt, for example.
You might also be able to provide a different form of collateral for the IRS debt so you can free up the property currently associated with the lien.
3. Lien Subordination
Lien subordination does not actually remove a lien. Instead, it moves the IRS lien down the priority list to allow other debts to become a higher priority.
One reason for choosing this lien “removal” option is to increase your mortgage/refinance opportunities.
For example, if you have equity in your home and do not want to sell it, you might try to refinance with a cash out option so you can use the cash to pay your tax debt.
The IRS is only likely to agree to a lien subordination if doing so increases its chances of collecting the tax debt in the future.
You also must complete an application for subordination (Form 14134).
4. Lien Withdrawal
In some cases, the IRS may withdraw a lien even if you do not pay the tax debt right away.
This could occur if you make an installment agreement with the IRS and agree to pay via direct debit. Other conditions do apply to these agreements.
When you can prove that a lien was filed incorrectly, the IRS may also remove it. For example, if you did not actually owe the taxes in question then the lien is not valid.
How Do You Know Which Lien Removal Option Is Best for You?
Getting a lien notice from the IRS or otherwise finding out that a lien has been filed against you can be worrying. Which of the four options is best to get rid of a lien depends on how quickly you can pay the debt and whether you need to sell your property to do so.
Take some time to consider your situation and your current resources carefully so you can plan how to approach paying the tax debt and removing the lien.
Of course, if you believe that the lien is an error, you will likely want to seek a withdrawal. Wiztax can review your specific tax situation with you to help remove a lien and pay off your tax debt.
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