How a Federal Tax Lien Starts
A lien follows a set process. Under the IRS rules for a federal tax lien, it starts when the IRS assesses your liability, meaning it officially records the amount you owe. Next, the IRS sends you a bill called a Notice and Demand for Payment.
If you neglect or refuse to pay that bill in time, the lien exists. The IRS may then file a public document called a Notice of Federal Tax Lien. This notice alerts creditors (lenders and others you owe or might borrow from) that the government has a claim to your property.
What a Tax Lien on Property Covers
Once the lien is in place, its reach is wide:
- It attaches to all your assets, such as securities and vehicles.
- It also attaches to assets you acquire while the lien is in place.
- The public Notice may limit your ability to get credit.
- If you own a business, it attaches to business property, including accounts receivable (money customers owe you).
- It may continue after bankruptcy.
Tax Lien vs. Levy
Failing to settle the debt can result in the seizure and sale of your property. The IRS uses a levy to actually take property.
| Term | What it does |
|---|---|
| Lien | Secures the government’s interest in your property |
| Levy | Takes your property to pay the tax debt |
How to Get a Tax Lien Removed
Paying in full ends the lien. If you can’t pay right away, the IRS has other options that limit the lien’s effect.
| Option | What it does | IRS document |
|---|---|---|
| Release | Ends the lien within 30 days after you pay in full | None needed |
| Discharge | Removes the lien from a specific property | Publication 783 |
| Subordination | Keeps the lien but lets other creditors move ahead of the IRS, which may make a loan or mortgage easier to get | Publication 784 |
| Withdrawal | Removes the public Notice, but you still owe the debt | Form 12277 |
Withdrawing a Lien With a Payment Plan
An installment agreement is an IRS payment plan that lets you pay your debt over time. Learn how an IRS payment plan works or review the IRS payment plan options.
You may qualify for a withdrawal with a Direct Debit installment agreement, which pulls payments from your bank account, if you meet these conditions:
- You owe $25,000 or less, or you pay your balance down to $25,000.
- The agreement pays your debt in full within 60 months or before the collection statute expires (the legal deadline the IRS has to collect).
- You’ve made three consecutive direct debit payments.
- You’re in compliance with IRS requirements.
- You haven’t defaulted on a prior installment agreement.
Property Tax Liens From Local Governments
A federal tax lien isn’t the only kind you might face. Local governments can place a property tax lien on your home if you don’t pay your property taxes. Rules for these liens vary by state and locality, so check with your local tax office.
How to Avoid a Tax Lien
The surest way to avoid a federal lien is to file and pay in full and on time. If you can’t pay, don’t ignore IRS letters, because payment options exist. Before you hire a company to help, find out whether tax debt relief is legitimate.
To verify a lien or get your payoff amount, call the IRS Centralized Lien Operation at 800-913-6050. You can use the same number to request a lien release.
