Tax Crisis Center


Tax Lientax help

A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:

  • Assesses your liability;
  • Sends you a bill that explains how much you owe (Notice and Demand for Payment); and
  • You neglect or refuse to fully pay the debt in time.

The IRS files a public document, the Notice of Federal Tax Lien, to alert your creditors that the government has a legal right to your property.

How to Get Rid of a Lien

Paying your tax debt – in full – is the best way to get rid of a federal tax lien. The IRS releases your lien within 30 days after you have paid your tax debt.

Options: When conditions are in the best interest of both the government and the taxpayer, other options for reducing the impact of a lien exist.

  • Discharge of property — Allows property to be sold free of the lien. The seller or buyer can submit a request to the IRS.
  • Subordination — Does not remove the lien, but allows other creditors to move ahead of the IRS, which may make it easier to get a loan or mortgage.
  • Withdrawal — Removes the public notice and assures that the IRS is not competing with other creditors for your property.

How a Lien Affects You

  • Assets — a lien attaches to all of your assets (such as property, securities, and vehicles) and to future assets acquired during the duration of the lien.
  • Credit — once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.
  • Business — the lien attaches to all business property and to all rights to business property, including accounts receivable.
  • Bankruptcy — if you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.

Avoid a Lien

You can avoid a federal tax lien by simply filing and paying all your taxes in full and on time. If you can’t file or pay on time, don’t ignore the letters or correspondence you get from the IRS. If you can’t pay the full amount you owe, you may have payment options available to help you settle your tax debt over time.

Federal tax liens are filed with the County Clerk where you live or where your business operates, and because they show up on your credit report, make it difficult or impossible to obtain any type of financing for any purpose. You cannot sell or transfer your property while a tax lien is filed against it, and since you won’t be able to borrow against it, you will not be able to use it to obtain a loan to pay off the back taxes you owe.

Tax Liens record the full amount owed to the IRS at the time the lien is filed. This information is routinely picked up by the various credit reporting bureaus, and so federal tax liens will eventually show up on your credit report.

Tax Levy

A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt.

If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in. For instance, the IRS:

  • could seize and sell property that you hold (such as your car, boat, or house), or
  • could levy property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).

The IRS usually will levy only after these three requirements are met:

  • The IRS assessed the tax and sent you a Notice and Demand for Payment;
  • You neglected or refused to pay the tax; and
  • The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. The IRS may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail, return receipt requested.

If the IRS determines the levy is creating an immediate economic hardship, the levy may be released. However, a levy release does not mean you are exempt from paying the balance of tax you owe.

Employers generally have at least one full pay period after receiving a Form 668-W, Notice of Levy on Wages, Salary and Other Income before they are required to send any funds to the IRS from their employee’s wages.

Levying Your Wages, Federal Payments, State Refunds, or Your Bank Account

If the IRS levies your wages, salary, federal payments or state refunds, the levy will end when:

  • The levy is released,
  • You pay your tax debt, or
  • The time expires for legally collecting the tax.

If the IRS levies your bank account, your bank must hold funds you have on deposit, up to the amount you owe, for 21 days. This holding period allows time to resolve any issues about account ownership. After 21 days, the bank must send the money plus interest, if it applies, to the IRS.

Installment Agreements

You can make monthly payments through an installment agreement if you are not financially able to pay your tax debt immediately. However, you will reduce or eliminate the amount of penalties and interest you pay and avoid the fee associated with setting up an installment agreement if you pay your tax bill in full. Before you apply for an installment agreement, you should:

  • File all required tax returns;
  • Consider other sources (loan or credit card) to pay your tax debt in full to save money;
  • Determine the largest monthly payment you can make; and
  • Know that your future tax refunds will be applied to your tax debt until it is paid in full.

Fees for setting up an installment agreement currently are:

  • $52 for a direct debit agreement;
  • $120 for a standard agreement or payroll deduction agreement; or
  • $43 if your income is below a certain level.

Offer in Compromise

An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you cannot pay your full tax liability, or doing so would create a financial hardship. The IRS will consider your unique set of facts and circumstances, to include:

  • Ability to pay;
  • Income;
  • Expenses; and
  • Asset or equity.

The IRS generally approve an offer in compromise when the amount offered represents the most the IRS can expect to collect within a reasonable period of time. A delinquent taxpayer should explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone.

Are you eligible

Before the IRS can consider your offer, you must be current with all IRS tax filing and payment requirements. You are not eligible if you are in an open bankruptcy proceeding.

Submitting your offer

There is a step-by-step process that must be followed in preparing all the forms for submitting an Offer in Compromise. Your completed Offer in Compromise package will include:

  • Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
  • Form 656(s) – individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656;
  • $186 application fee (non-refundable); and
  • Initial payment (non-refundable) for each Form 656.

Select a payment option

Your initial payment will vary based on your Offer in Compromise and the payment option you choose:

  • Lump Sum Cash: Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance and then pay the remaining balance of the Offer in Compromise in five or fewer payments.
  • Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance of your tax debt to the IRS in monthly installments while the IRS considers your offer. If accepted, continue to make monthly payments until your tax debt is paid in full.

If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the period your Offer in Compromise is being evaluated.

Understand the process

While your Offer in Compromise is being evaluated, you should be aware that:

  • Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
  • A Notice of Federal Tax Lien may be filed;
  • Other collection activities are suspended;
  • The legal assessment and collection period is extended;
  • You must make all required payments associated with your Offer in Compromise;
  • You are not required to make payments on an existing installment agreement; and
  • Your Offer in Compromise is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.

If your offer is accepted:

  • You must meet all the terms of your Offer in Compromise, including filing all required tax returns and making all payments;
  • Any tax refunds due you within the calendar year in which your Offer in Compromise is accepted will be applied to your tax debt;
  • Federal tax liens are not released until your Offer in Compromise terms are satisfied; and
  • Certain Offer in Compromise information is available for public review at designated IRS offices.

If your offer is rejected:

You may appeal a rejection of your Offer in Compromise within 30 days of such rejection.