The IRS files a tax lien with the county or parish government or Secretary of State to accomplish basically three things:
All three credit bureaus have stopped reporting tax liens, so there is the possibility a tax lien filed against you will not completely destroy your credit score. However, having a tax lien filed against you can cause big financial problems, particularly if you are trying to purchase a home, car or get business financing.
Lien Release, Discharge and Subordination
While the best way to get rid of a tax lien is to do everything possible to not allow it to get filed in the first place, that’s not always possible. So, how are tax liens removed?
Release: The easiest way to get a lien removed is to pay off the full amount of tax, penalties and interest owed. Realistically, that’s not always possible. An installment agreement to pay the tax can put taxpayers on the right track, but the tax lien won’t be released until the tax debt is satisfied, which would most likely be at the end of the installment agreement. If the tax debt, for whatever reason, can’t be or isn’t collected by the IRS, the statute of limitations on the debt may expire. In that case, the lien is considered unenforceable, and the taxpayer can request that it be released. The IRS may also, under the right set of circumstances, decide to release the lien if the outstanding balance is under $25,000, but don’t count on this happening without you taking action.
Discharge: In cases where the taxpayer can sell real property or other assets to satisfy the tax liability, the IRS may consider discharging that property or asset from the lien, as long as the taxpayer agrees to use the proceeds of the sale to pay the tax debt.
Subordination: A taxpayer may choose to refinance their mortgage or apply for a second mortgage or other financing in order to pay off their tax debt. A tax lien can prevent this from happening. But, the IRS may decide that a form of subordination, where the IRS in a sense lifts the tax lien to allow for a particular transaction, such as the refinancing, to take place. Subordination doesn’t remove the tax lien, however; it just allows a specific creditor to move in front of the IRS.
Why would the IRS do the subordination? By allowing the refinancing to be completed, the IRS gets the tax liability paid and the taxpayer can get their property refinanced. But, the IRS will need to see that extra funds for the payment of the tax debt will come as a result of the refinancing, otherwise the subordination will probably not be a possibility since the IRS has nothing to gain from it.
There are many solutions available to address a tax lien, before or after it is filed. Finding the right solution that works for your situation is important. Contact our IRS Dispute Resolution and Collections team for a free consultation.
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