What Is an IRS Tax Lien?
A federal IRS tax lien is a legal claim the government can place on your property when you don’t pay your federal tax debt. The IRS can place a tax lien on all your assets, including real estate, personal property, and securities, including financial assets.
The government must follow the steps below to place a federal tax lien against your property:
- The IRS determines your liability and assesses your balance.
- The IRS sends you a bill called a Notice and Demand for Payment.
- You don’t pay or answer the debt in time.
The IRS may then file a Notice of Federal Tax Lien; this is a record of your tax debt and the government’s claim of legal right to your property. It includes currently owned property or property acquired in the future. It is a public document anyone can look up, including creditors deciding whether or not to lend you money.
Why Tax Liens Left Your Credit Report
Credit bureaus are companies that collect your credit history into reports. The three nationwide bureaus are Equifax, Experian and TransUnion. Almost half of tax liens left their reports by July 2017, and none remained by April 2018. The IRS no longer reports tax debt liens to the credit reporting bureaus.
Today, bankruptcies are the only public record left on nationwide credit reports. That means a tax lien won’t show up when you or anyone else checks your credit report.
How a Tax Lien Can Still Affect Your Credit
Even after tax debt liens are removed from credit bureau reports, a filed lien can still hurt your credit. Lenders can find the public filing on their own, so a Notice of Federal Tax Lien may still limit your ability to get credit.
A lien also has staying power:
- It attaches to assets you get in the future.
- It may continue after you file for bankruptcy.
Tax Lien vs. Tax Levy
People often mix up a lien and a tax levy. The difference is that the tax lien comes before the tax levy. The tax lien gives the government the right to file and give notice that they will be executing the levy on your property and taking the property to satisfy the tax debt.
| Tax lien | Tax levy | |
|---|---|---|
| What it does | Secures the government’s interest in your property | Takes your property to pay the debt |
| What happens to your property | The government holds a legal claim to it | The government takes it |
How to Get a Tax Lien Released or Withdrawn
There are a few ways to clear a lien or lessen its impact. The one you use depends on whether you’ve paid the debt.
Release vs. Withdrawal
These two terms sound alike but have different effects.
| Release | Withdrawal | |
|---|---|---|
| When it happens | Within 30 days after you pay the tax debt | When you qualify and apply |
| What it does | Ends the lien | Removes the public notice |
| Do you still owe? | No | Yes, if the debt isn’t paid |
To ask for a withdrawal, file IRS Form 12277. For a certificate of release, follow the steps in IRS Publication 1450.
Ways to Qualify for a Withdrawal
The IRS offers two main paths:
- Your lien was released, and you’ve filed all returns for the past three years and are current on estimated payments or deposits.
- You’re on a Direct Debit installment agreement and meet the conditions below.
For the payment plan route, you must owe $25,000 or less. You can pay your balance down to $25,000 to qualify. You must also pay in full within 60 months or before the IRS’s collection deadline ends.
You qualify after three consecutive direct debit payments, as long as you stay compliant. You can’t have defaulted on a direct debit plan in the past. Learn how an IRS payment plan works, or check whether you can set up an installment agreement.
Subordination and Discharge
Two other options can help while the lien is still in place:
- Subordination can make it easier to get a loan or mortgage.
- Discharge removes the lien from a specific piece of property.
For questions about your lien, call the IRS Centralized Lien Operation at 800-913-6050.
Sources
- IRS, Understanding a Federal Tax Lien
- IRS, What Is a Levy?
- IRS, Form 12277
- IRS, Publication 1450
- Consumer Financial Protection Bureau, Removing Public Records
