How to Get a Federal Tax Lien Removed

By definition, a Notice of Federal Tax Lien (NFTL) is a document filed in state recording offices to make a tax liability public and to protect IRS priority in the debt against other creditors of the taxpayer.

The NFTL is the instrument used to make a tax lien public. By statute, a Federal Tax Lien arises once a tax has been assessed and notice and demand for payment have been executed. If the balance remains unpaid, the IRS may file the Notice of FTL to commence the effect of the lien.

The NFTL is a claim against an individual's property for payment or satisfaction of a tax debt. The NFTL attaches to all property or rights to property the taxpayer has or acquires.

As a matter of procedure, the IRS will file the NFTL once a taxpayer's balance reaches a certain ceiling. Liens are filed irrespective of if a taxpayer currently owns any real property.

Liens are also filed if an individual is granted an extended amount of time to make repayment, or if the IRS makes a determination that a taxpayer can make no payments at all due to current financial hardship. If so, the NFTL is filed to protect the government's interest in the debt while collection is deferred for an indefinite period of time.

If a lien has been filed, what options are available to a taxpayer to have it removed?

As a matter of policy, the IRS generally only releases a lien once a tax balance is full-paid, or is no longer owing.

For example, if you owed the IRS $30,000 and have been making timely monthly installments, and now you are in a full-paid status, the IRS will issue a Certificate of Release from the lien.

Your credit report will show you had a tax lien, and that it was satisfied. This stays on your credit rating for historical purposes for seven to ten years, unless the IRS withdraws the lien. See the subheading below.

If you had that same $30,000 balance but the amount due was absolved for another reason, such as the filing of an amended return that reduced your balance or because the time for the IRS to collect the balance expired (This is called the Collection Statute Expiration Date), then again, a Certificate of Release will be provided. Absent an IRS error or withdrawal, your credit report will not be expunged of the fact a lien was filed.

For the above reasons, be cautious of any third party tax debt "specialist" who makes a guarantee to remove a tax lien, especially without first giving your case a comprehensive review. There are no special options available to third-party attorneys, CPAs or anyone else.

Lien Withdrawals

Under new provisions that went into effect in February 2011, an individual who enters into a direct debit monthly installment agreement who also owes less than $25,000 is eligible for a withdrawal of the NFTL under IRC 6323(j)(1)(B).

This same provision applies to taxpayers who convert their existing payment arrangement into a direct debit agreement. Liens will be withdrawn after a probationary period where taxpayers must demonstrate the ability to make consistent direct debit payments.

Liens may also now be withdrawn once a balance is paid in full, if the taxpayer requests it in writing and if other conditions are met. Form 12277 is used to request withdrawal of the NFTL.

You can read the entire IRS News Release regarding the changes to lien filing here.

More from this Contributor:

What is an IRS Notice of Federal Tax Lien?

What is the difference between an IRS levy and a lien?

What is an IRS Collection Due Process Appeal?