The Notice of Federal Tax Lien (NFTL) is a very powerful tool of the IRS. When taxpayers have tax debt, one of the most common reasons they come to our Richardson, TX tax office is due to a tax lien. I will often be asked if I can contact the IRS and have the lien removed. As a general rule, the answer is no. The IRS files liens only after sending several notices and the taxpayer has often not dealt timely with the debt. The main reason that the IRS Files liens are because its effective. It can impact a taxpayer’s ability to sell or buy a home, get new financing, and in general has a stigma that taxpayer’s do not want. There are some ways to deal with a lien that has already been filed that we’ll discuss below.
What a Taxpayer Can Do One an IRS Lien is Filed (NFTL)?
Here are a few ways a Notice of Federal Tax Lien (NFTL) can be removed:
- Released after the Statute of Limitations Expires – Did you know that the IRS only has 10 years to collect the tax debt? Unless an event occurs that tolls or delays the statute, tax debt expires 10 years after it was assessed. There is no notice; it simply self-releases.
- A Taxpayer can request a Withdrawal if they debt is below $25,000 and after 3 payments with a Direct Debit Installment Agreement (DDIA).
- Over $25,000? Pay it down to $25,000 and then set up the DDIA.
- If the Lien harms the Taxpayer’s ability to pay the IRS, such as a loss of occupation, the IRS may discharge the lien. The trick here is to communicate to the IRS that the lien harms that taxpayer (that’s the purpose of the NFTL), but it harms their ability to pay the government.
- Is it a Valid NFTL? Is it in the correct name, SSN, address and filed in the right county? If the NFTL is invalid, the taxpayer may request a discharge.
- The IRS will allow a Taxpayer to sell a property, provided they step into the Taxpayer’s shoes and receive what is due to the government, or the full amount of proceeds due the taxpayer from the sale. What if a home has no equity? The government has no interest in an asset with no equity and will typically permit a short sale in these cases.
In most cases, while these actions can be taken by the taxpayer, it is advantageous to have an effective advocate communicating directly to the IRS.
Which IRS Forms Do Are Used?
- Withdrawal – Use IRS Form 12277
- Release – There is no IRS Form. Will write a letter to the last area of collections the taxpayer corresponded with.
- Discharge – Use IRS Form 14135
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