Episode 32: In this episode, Timalyn will discuss the process remove a tax lien. She recently taught a class to a group of tax professionals. Many of them had questions related to this topic. Based on their responses, she thought this would be a good topic to share with actual taxpayers who follow her podcast.
If you're dealing with this situation, you've probably already received the IRS Notice of Federal Tax Lien. The IRS files this with your county clerk's office.
What Is a Federal Tax Lien?
Timalyn explains that it's when the IRS "calls dibs" on your property, until your federal tax debt is paid. Even if you're not a homeowner, it applies to any property (real or personal), such as a car. The lien is attached and will enable the IRS to recover its money from the proceeds, if that asset is sold. A business may have accounts receivables. The lien also attaches to this so that the IRS gets paid from those receivables or other business property. In fact, the IRS can even attach a lien to your retirement funds. This is a serious situation.
In Episode 7, Timalyn explained the Collection Statute Expiration Date ("CSED"). It's the last day the IRS can legally collect on a tax debt. Federal tax liens also have a similar date. They are self-releasing within 10 years of the date they were filed, as long as the IRS doesn't re-issue a lien for specific years.
What if I Haven't Received a Notice of Federal Tax Lien?
This doesn't necessarily mean you're in the clear. The lien is issued after the tax is assessed and after a CP14 has been issued. The CP14 gives a date by which the payment must be made. If you fail to comply with that deadline, there is a silent tax lien.
Due process has been followed for the lien to exist. It just hasn't been sent to the county clerk's office. That's why it's referred to as a silent lien. This is important to note because the IRS can issue a tax levy, as discussed in Episode 5 without filing a lien with the county clerk.
What if I Can't Pay the Tax Debt?
As Timalyn discussed in Episode 10, you may have the option of setting an IRS installment agreement. If you owe less than $10,000 and have been tax compliant for the past few years, it may be a guaranteed option. Check out Timalyn's e-book, How to Guarantee a Pay Plan with the IRS.
Assuming you've already received the tax lien, how do you remove it?
4 Ways to Remove a Federal Tax Lien
The first way: Pay the Debt
This is not sarcasm. It's the obvious solution, if you can do it. Things happen and situations change. Once the debt is paid, the tax lien will be removed within 30 days. The amount required can include the tax debt, any penalties and any interest that has accrued. Call the Centralized Lien Office at 800-913-6050. You'll want to verify the total amount owed, request the years with a tax lien issued on them and importantly, to request a Payoff Letter. This letter will be necessary if you're going to sell an asset with a lien attached.
Timalyn discussed selling a home with a tax lien in Episode 4. The Payoff Letter would be needed by the title company, so you can prove how the lien will be resolved, without delaying or preventing the sale.
The second way: A Discharge of Property
This process will usually take about 45 days. You'll request that the IRS remove the tax lien so the property can be gotten rid of. You'll have to provide specific information on the IRS Form 14135, Application for Certificate of Discharge of Property from Federal Tax Lien. The information will include:
● The Fair Market Value of the Property
● Who Is Interested in Purchasing the Property
● The Sale Price (to determine the proceeds available to pay off the tax debt)
● And other, related details
The third way: Subordination
This does not eliminate the lien. However, with subordination, the IRS agrees to stand aside to allow another creditor to get its share before the IRS. They'll potentially do this if they feel it's in their best interest. Timalyn give the example of someone with an installment agreement who is struggling to meet the agreed upon payments. If another debt could be eliminated, it would enable more money to be applied to the installment agreement payments.
The fourth way: Requesting a Lien Withdrawal
If your tax debt is less than $25,000, you're setup with a direct debit installment agreement, you have no defaults related to the agreement, your most recent tax returns are filed, your tax withholdings are in order (or you're making your estimated quarterly payments) and you've made 3 consecutive payments on the agreement, a good faith request for lien removal can be made.
You'll need to complete IRS Form12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien.
Is Bankruptcy an Option for Back Taxes?
This is a misconception many people have. You cannot put a tax return into a bankruptcy unless it meets a 3 year, 2 year, 240-day rule. As of the recording of this episode in 2023, your 2022, 2021 or 2020 tax debt would not qualify.
Additionally, if you have a federal tax lien, you should not put that into the bankruptcy. The IRS has a secured interest, via the lien, and you'll have to pay it back anyway.
Bankruptcy may be a viable option for debts unrelated to tax lien. If this is your situation, Timalyn suggests you work with both a bankruptcy attorney and a tax professional to make sure your bases are covered.
Timalyn is the owner and lead accountant at Bowens Tax Solutions and they can assist with tax lien removal. If you want to work with someone else, at least you now have good information to help you understand the process. If you would like to work with Bowens Tax Solutions, make sure you book your tax relief consultation with Timalyn.
Please consider sharing this episode with your friends and family. There are many people dealing with tax issues, and you may not know about it. This information might be helpful to someone who really needs it. After all, back taxes shouldn't ruin their life either.
As we conclude Episode 32, we encourage you to connect with Timalyn on social media. You'll be able to subscribe to this podcast on Spotify, Apple Podcasts, Google Podcasts, and many other podcast platforms.
Remember, Timalyn Bowens is America's Favorite EA and she's here to fill the tax literacy gap, one taxpayer at a time. Thanks for listening to today's episode.
For more information about tax relief options, visit https://www.Bowenstaxsolutions.com/ .
If you have any feedback, or suggestions for an upcoming episode topic, please submit them here: https://www.americasfavoriteea.com/contact.
Disclaimer: This podcast is for informational and educational purposes only. It provides a framework and possible solutions for solving your tax problems, but it is not legally binding. Please consult your tax professional regarding your specific tax situation.
