Last Updated on: 20th October 2023, 10:06 am

How to Lift a Federal Tax Lien Placed on Your Assets and Property

Having a federal tax lien placed on your assets or property can be a stressful and confusing situation. A tax lien means the IRS has a legal claim to your property as security for unpaid taxes. The good news is there are a number of ways you may be able to get the lien removed.

Here’s an overview of what a federal tax lien is, how it works, and most importantly—how you can get it lifted so you can move forward.

How Does the IRS File a Tax Lien?

There is a process the IRS follows when filing a federal tax lien against you:

1. You fail to pay your taxes on time. This could be for a variety of reasons—you lost your job, had unexpected medical bills, went through a divorce, etc. Regardless, at some point you become delinquent on your taxes.
2. The IRS sends you notices requesting payment. If you still do not pay, they will send a formal demand letter.
3. Once you owe $10,000 or more in back taxes, a lien arises automatically by law. This gives the IRS the right to your property.
4. The IRS files a public Notice of Federal Tax Lien document to formally establish their interest in your property. This is filed with your state government.
5. The tax lien is now attached to your property until the taxes are paid in full or it is released.

As you can see, a tax lien is not imposed immediately the moment you fall behind. There is a process where the IRS attempts to work with you to resolve the debt. But if it remains unpaid, they will take measures to secure their interest.

How to Get a Federal Tax Lien Removed

Now that you understand what a federal tax lien is, let’s get to the good stuff—how to get it removed. Here are some of the main options:

1. Pay Off Your Tax Debt

The most straightforward way to get a tax lien removed is to pay off the entire amount you owe to the IRS. This eliminates your debt and the IRS will release the lien.

Some tips if you go this route:

• You may qualify for an IRS installment agreement to break up payments over several months or years if you cannot pay in full immediately.
• Consider borrowing from retirement accounts or taking out a home equity loan.
• Prioritize paying your IRS debt before other debts since they can seize assets.
• Get professional help creating a payment plan if needed. A tax expert or CPA can assist.

While paying in full quickly may not be possible for everyone, it is the quickest way to get a lien removed if you have the means.

2. Apply for Currently Not Collectible Status

If you simply cannot afford to pay anything towards your tax debt currently, you may request that the IRS put your account into “currently not collectible” (CNC) status. This will pause IRS collection efforts and may get a lien withdrawn.

To qualify for CNC status, you must prove to the IRS that:

• You have less than $10,000 in total assets, excluding your home and car.
• Your monthly income barely covers basic living expenses.
• You have no ability to borrow against your assets.

CNC won’t make your debt go away, but it will stop collections temporarily until your financial situation improves. It’s a good option if you are unemployed, disabled, or facing other hardships.

3. Apply for an IRS Offer in Compromise

With an IRS offer in compromise, you can settle your tax debt for less than the full amount you owe. The IRS will consider an offer if:

• You have no ability to ever fully pay your tax debt.
• Paying your full debt would cause an economic hardship.
• There are doubts the IRS could collect the entire debt within the statute of limitations.

If approved, you would pay a smaller lump sum or monthly payments for 24 months. This can be a great solution if you can show paying in full would cause significant financial stress.

4. Prove Financial Hardship

Outside of a formal offer in compromise, you may also request your lien be withdrawn by proving it is causing financial hardship. For example, if you cannot get a loan to buy a home or car needed for work because of the lien.

To do this, you will need to submit detailed documentation to the IRS showing how the lien is impairing your ability to pay living expenses or harming your ability to earn income. If they agree, they may withdraw the lien, but your overall tax debt would remain.

5. Request Lien Subordination

If you need to sell an asset like a home or car but cannot due to the lien, you can ask the IRS to subordinate their lien to the new buyer or lender. This temporarily moves the IRS to a second position so you can complete the sale or financing.

The IRS will usually agree to this if you use the proceeds to pay towards your tax debt. It allows them to get paid while letting you access needed funds.

6. Prove Wrongful Lien Filing

In very rare cases, you may be able to prove the IRS lien was filed wrongfully or prematurely before you actually owed taxes. For example, if you already had an approved installment agreement or offer in compromise.

If this applies to you, work with a tax professional to gather evidence and submit a formal request for withdrawal of the erroneous lien.

7. Wait for Lien Expiration

If you are unable to get a lien removed through any other means, it will eventually expire after 10 years. The IRS may renew the lien if your tax debt remains unpaid, but an expired lien will remove their claim to your property.

This is obviously not ideal, but it can give you a fresh start after 10 years if you have no other options.