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Have you received a notice of a tax lien? If you have, you owe the IRS money that you haven’t paid, and they’ve staked a claim against your real property or personal property to settle the debt.

Having a federal tax lien isn’t the end of the world. Tax liens can cause real problems, but they can’t harm your credit: tax liens are no longer placed on your credit report. Plus, there are ways to remove a tax lien and get on with your life.

What is a Federal Tax Lien?

A federal tax lien is one tool the IRS has at its disposal to collect money owed to them. It gives the IRS a legal right to take your money or property – including your house – if you don’t pay up.

Tax liens are public records, too. If your neighbor or your uncle wants to look for a federal tax lien, they’ll be able to see it. And there isn’t anything you can do about that. You can still take steps to remove a federal tax lien.

Will it Affect Your Score?

If you worry about the impact of a federal tax lien on your credit score, you can breathe a sigh of relief. The credit bureaus – Experian, Equifax, and TransUnion – changed their policy in 2017 to remove civil judgment records and tax lien data. Want to find out for sure? Federal law allows you to get a free copy of your credit report once a year at AnnualCreditReport.com.

6 Options to Remove a Tax Lien

The IRS doesn’t give you much advance notice when they put a tax lien on your property. If you get a Notice of Federal Tax Lien, there’s not much you can do to stop it. So, what are your options? Depending on your situation, the IRS can remove a federal tax lien or withdraw it.

Check the Facts

Did you know the IRS makes mistakes? Shocking, I know. But it’s true! Not even the IRS is perfect. Sometimes the IRS will send a Notice of Federal Tax Lien in error. When this happens, the IRS will remove the lien altogether.

When the IRS withdraws a lien, the lien is erased as though it had never existed.

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Fork Over the Cash

The quickest way to remove a tax lien is to pay your balance in full. That’s not always an option. You could explore the idea of taking out a personal loan to pay off your tax debt, using a home equity loan or HELOC, borrowing from a retirement account, or transferring what you owe to a credit card.

Try to Settle for Less

If there’s no way you’ll ever be able to pay off your tax debt, the IRS might agree to settle for less than you owe. It’s called an offer in compromise (OIC). The trouble is, it’s not very common, and the IRS can return or reject your request.

Offer in Compromise Mistakes:

Tax relief expert (and former IRS revenue officer) Jeffrey McNealsays when he processed offers, he saw tons of mistakes made on the forms, even when prepared by CPAs and enrolled agents!  So be sure to ask an expert for help.

But Canopy Tax has some advice:

“Remember, an offer being returned is not the same thing as it being rejected. An offer is returned when the taxpayer didn’t submit necessary information, filed for bankruptcy, failed to include required application fees, hasn’t filed required returns, or hasn’t paid current tax liabilities. You can’t appeal a returned offer, but once the offer is updated it can be submitted again.”

Make Payments

If the IRS won’t approve your OIC, the next best thing is to set up an installment agreement. Installment agreements are part of the Fresh Start Program.

Quick tip: Once you start an installment plan, you will have a harder time qualifying for a debt reduction request later.  We recommend you speak to an expert to see if you qualify for an offer in compromise first.

The IRS Fresh Start Program allows the IRS to withdraw a lien if the taxpayer has entered into a Direct Debit Installment Agreement.

Canopy Tax

With a direct debit agreement, you authorize the IRS to automatically take the monthly payment from your checking account.

Play the Waiting Game

When it comes to federal tax debt, a statute of limitations applies. Here’s why that’s important, it means the IRS can’t try to collect from you forever. The statute of limitations for federal tax debt is 10 years. You must be wondering: “Will all of this go away if I ignore it for 10 years?” Probably not. It’s unlikely the IRS will sit on the sidelines while you owe them money. Their collection efforts usually get more aggressive the longer you have a balance. You’re much better off contacting the IRS directly or hiring a tax debt relief company and facing this problem head-on.

What if You Really Don’t Have the Money?

There’s something called currently not collectible (CNC) status or a temporary delay in collection. If you don’t have enough income to pay your taxes and reasonable living expenses, the IRS might grant this status and temporarily let you off the hook. You must prove that you’re struggling financially first. 

Even if you have CNC status, your tax debt will grow with penalties and interest charges. You’ll also get a tax bill in the mail every year. And if you’re expecting a refund on your income taxes while you have a balance, the IRS will likely keep that for themselves, at least until your balance is paid in full. In this case, if you remain CNC for 10 years, the statute of limitations is up, and the IRS can’t try to collect from you anymore.

A Tax Lien Doesn’t Mean You Lose the Property

A tax lien is a claim on your property. You will not be able to use the property as collateral for a loan while a lien is in place. A lien does not mean you lose the property. You could, if the IRS thinks you are simply refusing to pay, but if you reach any kind of deal with the IRS the lien can be lifted.

If you have a tax lien, act immediately. Contact the IRS directly or hire a reputable tax relief company, but don’t wait. If you can negotiate a solution and make your payments there’s a good chance that the lien will be lifted.