How to Release a Tax Lien

An IRS tax lien will remain in place until you pay off taxes owed, prove financial hardship, or until the IRS has levied enough of your assets to call it even. With just a tax lien, the IRS cannot take assets, but they will eventually place a levy on your assets if no action is taken when a tax lien is given. A tax levy is highly likely if you do not resolve your taxes after the lien is placed. A lien ensures that the IRS has a legal claim on your property so you cannot sell or dispose of property without the IRS taking its share first.

Ways to Release or Remove a Tax Lien

Do Nothing

With this option you can wait until the IRS statute of limitations expires. The IRS normally has a 10 year period to collect back taxes owed from the date that they were originally assessed. This is normally not a good option because the IRS can then enforce a tax levy on you and forcibly take your assets. But if you have no assets, or you are very good at protecting your assets from the IRS then this could be an option. Another downside to this is that the tax lien will show on your credit report forever if you never actually paid anything to get the tax lien released.



Pay off the Entire Amount of Back Taxes Owed

When the tax amount is paid in full, the tax lien will be released and you will be back on good terms with the IRS. Some possibilities to paying off the taxes owed could be to borrow from friends and family, take out a loan, do a home equity loan, borrow the money on credit or sell some of your assets.



Setup a Payment Plan with the IRS

The IRS readily accepts payment plans. The most typical form of payment plan is an installment agreement. Once the payment plan is accepted the lien will not be removed until all taxes, penalties and interest have been paid off in total.



Offer in Compromise

File for an offer in compromise. A tax lien will be released when your offer is accepted. With an offer in compromise you can possibly settle your back taxes owed for a fraction of the total amount owed. The catch with this is that you will have to prove that the amount you offer them is more than or equal to the amount they are likely to collect from you if they enforced collection actions against you.



Post a Bond

Once you post a bond the lien will be released. This is highly unlikely way to settle though because if you can post a bond, then you can probably pay the back taxes owed and you wouldn't need a bond.



Appeal the Lien Filed

The IRS has five business days after filing the lien to provide you with written notice. The written notice must include "Notice of right to request a hearing." That hearing must be within 30 days from the sixth day after the Lien filing. If you win the appeal, the lien will be withdrawn. However, the filing of the lien will still appear on your credit report. This method would not be practical for those out to protect their credit.



Request Partial Discharge

You may own several assets that are encumbered by the tax lien. You can use one of these assets to pay off the IRS. If you want to do this, be sure to ask for a discharge from the tax lien. There is no preprinted form for you to fill out, so you will need to send a detailed letter to the IRS. IRS Publication 784, "Application for Subordination of Federal Tax Lien" lists all the information you will need to include in your letter.



Tax Lien Help from a Professional

Tax professionals are the best option for dealing with complicated tax issues like a tax lien. Not only can a tax professional get a tax lien release quickly, they will completely analyze your financial situation and find the best possible solution for you. Find out more about how our services work and understand why it is important to use a tax professional when dealing with a lien.

Avoid Bankruptcy

Contrary to popular belief, filing Bankruptcy will not wipe out a tax lien. If your tax debts qualify for a discharge under any type of bankruptcy, the lien will remain. If you owned any property going into bankruptcy, the property is still subject to a tax lien. The IRS could seize the property after your bankruptcy is over.

What to Do if the IRS Files a Tax Lien in Error

The IRS occasionally files a tax lien notice when you don't owe anything. Perhaps you paid your bill late, and the IRS neglected to update your account. If this happens, under the Taxpayer's Bill of Rights you are entitled to a "Certificate of Release." The "Certificate of Release" will state that the lien was filed in error. It will then be your job to mail or deliver photocopies of the release to the three credit bureaus- Experian, TransUnion, and Equifax. This will minimize the damage to your credit rating caused by the IRS error.

When the Lien is Released

Once the tax amount is paid or settled in any of the above ways, the IRS will issue the Certificate of Release (Form 668Z) within 30 days. You will have to record this certificate which means you will have to pay the recording fee in the county where the lien was filed. It is also important to send to the credit bureaus so it makes it into your credit file. This will not remove the lien from your credit report. Your credit report will show the existence of the lien, but once the certificate of release is received, it will show the release of the lien as well. This will stay on your credit report for up to 10 years after the release.

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