A federal tax lien has been a tax debt settlement for the IRS to collect interest on taxes that were not paid. If you owe back taxes and don’t get them paid in time, your account will be turned over to the IRS for collection using lien or levy procedures. The IRS holds liens against any property it determines to be delinquent in paying federal taxes. Depending on how much money is owed, the IRS may take possession of the property and sell it or order you to give it back and forgo getting a tax lien against your real estate. Although you can get out of this situation through Tax solutions services offered by formal IRS agents, which can help you get the best of irs tax relief services such as tax offers in compromise.

What is a federal tax lien?

A tax lien is a form of collateral that supports the government’s claim to your property in court. It happens if you fail to pay your tax bill or are careless about it. To safeguard the interests of the Government, all of your assets are susceptible to non-payment liabilities.

The government has the legal right to use this tool in its fight against creditors, and the claim is legitimate. Paying your taxes on time and using other methods, including property discharge, subordination, and withdrawal, will help you avoid a tax lien.

Difference between Lien and Levy

Lien and Levy are often used interchangeably. However, they are not the same.

Federal Tax Lien: The Internal Revenue Service (IRS) will file a tax lien to secure the government’s right to collect unpaid taxes.

A tax Levy: levy is the government’s attempt to collect those taxes by whatever means necessary, including taking money straight from a person’s bank account or wages.

Just how can a tax lien affect your life?

If you find out you have a federal tax lien on your property, you need to take fast action. What can happen if you have a federal tax lien?

Police may seize personal property, including cars and houses. Your wages, bank balances, and retirement money may all be susceptible to tax liens. Credit applications may be more challenging to complete after receiving notice of a federal tax lien. All rights to the company’s assets, including accounts receivable, may be forfeited if a federal tax lien is issued against it.

With that,

  • Tax liens impact your ability to borrow money: Removal of a federal tax lien might be challenging:

A federal tax lien is a public record form indicating a standing obligation. Lenders will view you as a “risky” borrower if you’re looking to take advantage of fresh credit options. This can make it hard to open a new line of credit or get a loan. If a federal lien has been placed on your assets, you may have a more challenging time qualifying for a loan or other credit-based account.

  • There is a possibility that a lien will hinder you from selling or refinancing your home:

Your ability to sell or refinance your house could be hindered if a lien is placed on it. The ability to sell or restructure debt on a particular property, like a house or car, is severely limited if a lien has been placed on that asset. The deficiency, plus interest and associated legal fees, must be paid in full before the property can be sold or refinanced.

  • Personal bankruptcy does not discharge tax liens:

Do not forget that the tax lien will still be there after filing for bankruptcy. If you file for bankruptcy, the IRS lien will not be discharged, but they may agree to lift it. If you have tax debt, you should discuss your options with an attorney to determine if bankruptcy is a viable solution. They may also help you figure out what information must be included in your bankruptcy petition for the court to review.

The fallacy around Tax Liens

The most widespread misconception about federal tax liens is that they lower credit scores. It is not valid longer extended since 2018. Tax liens or outstanding obligations to the IRS do not affect credit scores.

Before that, tax liens were common on the files of the three major credit bureaus. Because of this, one’s creditworthiness and access to opening new accounts may be negatively impacted. While tax liens are no longer reflected on credit reports, this does not mean they are hidden from view. This means that a potential creditor can (and probably will) learn about a tax lien, which can affect your credit score.

How to get rid of a Federal tax lien.

If you have received a Notice of Federal Tax Lien and would like to contest the IRS’s authority to collect assets for unpaid taxes, you have a few options.

  • Installment Plan:

A tax payment should be your first order of business. It’s so simple that it almost seems like a joke, yet it does work! The only way to avoid a tax lien or levy is to pay any outstanding taxes you owe. Don’t lose hope if you cannot pay your taxes right away; you may be able to have the federal tax lien erased from your credit report by contacting the IRS. One way to accomplish this is to agree to a payment plan in which a set amount of money is deducted from your bank account on a predetermined schedule. (This installment may contain interest and penalties.)

  • Offer in compromise:

The next thing to do is to inquire about submitting an Offer in Compromise. There are many rules to follow, and the IRS approves less than half of the applications. All tax returns and estimated tax payments are due for the current tax year. Your application will be denied if you are in bankruptcy or under audit by the IRS.

  • Engage the services of a tax expert to represent your interests in negotiations:

The Internal Revenue Service (IRS) has many repayment plans and settlement agreement options available to help clients get their tax debts under control. Take the federal payment levy system as an illustration. Despite their benefits, these systems require expert leadership and knowledge of the applicable regulations and processes to guarantee efficiency.

  • Submit a formal plea:

You can ask for a collection due process hearing from the IRS Office of Appeals if you want to have a lien or levy notice reviewed. In addition, if you disagree with an IRS agent’s decision about a lien or levy, you can ask to speak with that agent’s supervisor and have your case reviewed by the Office of Appeals.

What must be done to remove a federal tax lien from your assets?

A federally-registered tax practitioner (such as a lawyer, certified public accountant, or enrolled agent) handles tax liens and collections. Help is also available without charge via the government-funded Taxpayer Advocate Service and tax clinics.

When dealing with the IRS, taxpayers may hire a professional to advocate during audits, collections, and other encounters. Also, they can write letters to the IRS on their client’s behalf and advise on various tax matters.

How to avoid a Federal tax lien?

Federal tax liens can be avoided if the tax liability is paid in full before the IRS registers a lien, but this is not always practicable. It is possible to prevent liens by working out an installment plan with the IRS if you cannot pay the whole amount due all at once. Liens for federal taxes won’t be issued against taxpayers who work out payment arrangements with the IRS through programs like the Guaranteed Installment Agreement and the Streamlined Procedures Program. The Taxpayer must initiate contact with the IRS to establish these agreements. The Internal Revenue Service will not advise taxpayers who wish to avoid a lien to take these measures.

Depending on the total amount you owe, a payment plan in installments may be arranged. You can settle in 120 days or arrange a longer payment plan if that works better for you (for which there will be a setup charge). Remember that there may still be fees and penalties until the entire amount is paid, even if you’re on an installment plan.

What if there is a mistake?

You can appeal if you disagree with the information in the Final Notice of Intent to Levy.

First, contact the IRS agent listed on the notice, but remember that you have the option to file an appeal. They only have 30 days to respond, so it’s not the same as phoning the IRS. Inaccuracies can and do occur inside the IRS. Make sure your agreement to pay the IRS in installments is properly recorded. In rare situations, you may choose to commence the appeals procedure.


You may see a decline in your wealth after receiving a tax lien. A bad credit score can make it difficult to get a loan or rent an apartment. Finding a job after receiving notice of a tax lien from the IRS can be challenging because many firms now require applicants to undergo credit checks.

A federal tax lien’s release is straightforward, so that’s excellent news.

Don’t freak out, though, if you haven’t yet filed your taxes or made the necessary payments. With the help of a qualified tax attorney, a tax lien can be lifted.

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Mr. Michael D. Sullivan

Michael D. Sullivan is the founder of MD Sullivan Tax Group. He had a distinguished career with the Internal Revenue Service for 10 years. As a veteran IRS Revenue Officer / Agent, he served as an Offer in Compromise Tax Specialist and Large Dollar Case Specialist.

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