Appraising Tax Liens
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A tax lien is a claim made against your property by the federal government if you fail to pay your tax debt. In this way, you make think of your assets as collateral against the amount you owe; just like a bank, the government wants assurances that they will be able to pursue collections against you. Your property represents physical goods that the IRS stakes a claim on, in the event that you do not satisfy your debt.
A tax lien is significant because it can affect many important aspects of your life. You probably won’t be able to obtain new credit if you have a lien placed against you. Similarly, any property you have which has any value will be attached to the lien. Simply put, your financial interests can become completely entangled with the government’s efforts to collect your debt.
Fortunately, there are ways to get a lien removed. The quickest, easiest solution to get the lien lifted is to simply pay the tax debt off in full. If you lack the funds or resources to make this a reality, you have some other options.
The Order of Operations
In many cases, the IRS may be willing to release a lien against the property in question because of consideration to other creditors and how this affects your ability to pay your debt. You may be able to avoid an extended tax lien if you have prior obligations that must first be satisfied, which increases the likelihood that you’ll be able to address your liability. If you’re going to request to have your lien lifted, here are a few options supported by the IRS:
Subordination – In certain instances, the IRS will permit other creditors to take priority in order for you to obtain a mortgage or loan. This doesn’t remove the lien, but it creates an exception for you to move forward with a home refinance, for instance. In such a scenario, the IRS becomes the primary claimant after the credit or banking entity you’re dealing with. This arrangement is attractive to the government if you’ll ultimately free up money that you can apply toward your liability.
Discharge of Property – If the IRS has placed a lien against a specific piece of property you own, it’s possible to have this removed. This might be in the government’s interest if it’s determined that there are previous creditors – otherwise known as senior creditors – to whom you owed prior to your tax debt. In this instance, earlier lien holders already have a stake on your property and if their interest greatly lowers the value of that property, the IRS may be persuaded to disregard it.
The key here is that the IRS must be given an actual reason for your discharge request. This option can be useful to you if by lifting the lien, the IRS would allow you to sell your property and use the proceeds towards your tax debt.
Withdrawal – A withdrawal is an update to the Notice of Federal Tax Lien in public record, and confirms that the IRS is not trying to move in front of other creditors in their claim on your property. Regardless of this revision, you’re still expected to pay the debt.
This type of resolution should be pursued if you’re in a formal agreement with the IRS to pay back your liability. Specifically, the sticking points here are that you must be in a streamlined installment plan with the IRS and your scheduled payment is paid via direct debit without any history of defaulting. Finally, the total amount of your debt cannot exceed $50,000. While the government’s requirements are strict, the withdrawal is certainly something you should consider if you’re in this type of situation.
The Bottom Line
No matter what type of resolution you’re seeking to sidestep a tax lien, the critical thing to remember is that it must be viewed by the IRS as being in their best interest. Simply making a request because you find the lien uncomfortable is not sufficient for the government to approve your submission. Their primary function is to ensure that you’ve exhausted any and all means to pay your tax debt. If it so happens that this coincides with a resolution that benefits your situation, all the better for you. IRS.gov may prove to be a valuable resource for you to learn more about your options and your rights as a taxpayer.
Given the complexity that comes with requesting getting around a tax lien, you may also want to speak with a tax resolution company. You can request a free consultation to get a clearer idea of your chances in getting a lien removed, given the specifics of your case. The advantage for you in seeking this type of assistance will be ensuring that any forms or necessary documentation will be provided to the IRS completely and accurately by a licensed tax professional.