Notice of Federal Tax Lien: What This Letter Means & What to Do

If the IRS has sent you a Notice of Federal Tax Lien, the worst thing that you can do is ignore it. A Notice of Federal Tax Lien should be taken very seriously. There are many things that can happen as a result of receiving a Notice of Federal Tax Lien, and if you are not aware of what this letter means for you, how to address it and what the consequences of it may be, you will likely worsen your situation.

What is a Tax Lien?

The IRS attaches a tax lien to your property in order to secure the repayment of the taxes that you owe. If you do not pay off your tax liabilities and you have over $10,000 in taxes owed, the IRS will stake claim to your property.

Is It Possible to Remove a Tax Lien?

It is possible to release a tax lien filed against you if you take the proper measures, but there is a clear distinction between a release and a withdrawal. With a release, a tax lien will still show on your credit report as paid or released. You can and should request to have the tax lien withdrawn, whereby the tax lien is completely withdrawn from your credit report. If a tax lien is released but not withdrawn, the “paid status” of the tax lien will remain on your record.

The IRS will release and/or withdraw a tax lien if you:

1. Pay Your Tax Liability. By paying your taxes owed in full – which means paying all accrued interest and penalties in addition to the original amount owed – you can have the IRS release your tax lien within 30 days. The option to have the tax lien withdrawn is not available under this circumstance.
2. Submit a Bond. If you submit a bond that guarantees your willingness and ability to pay back what you owe the IRS, your lien will be released within 30 days. In this case, you may also be able to successfully request that the tax lien be withdrawn by the IRS.
3. Set Up an Installment Agreement. If you set up a direct liability installment agreement with the IRS and you owe less than $25,000, you are able to have the tax lien completely withdrawn from your credit report – or not added to your credit report at all if it has not been already – after a certain period of successful monthly payments.

Simply put, the only way to release a lien filed against you is to either pay the IRS what you owe or show the IRS that you plan on paying in the near future.

What If I Disagree with the Tax Lien Filed Against Me?

You reserve the right to appeal a tax lien filed against you. By law, the IRS is obligated by notify you in writing within five days after filing the lien. The Notice of Federal Tax Lien will be mailed to your address, delivered in person or left at your home. If you believe that a mistake has been made, you can ask the IRS to review your case. Additionally, you can request a Collection Due Process hearing. If granted, once the hearing is complete you will receive a determination from the IRS, either that the tax lien is staying in place or that it is being withdrawn or released.

Next Steps

If you have received a Notice of Federal Tax Lien from the IRS, you should deal with it immediately. You can have the lien released by paying what you owe, or – if you feel there was a mistake – you should begin the appeal process. Regardless of the path you choose to take, be sure to take the severity of this situation seriously.