IRS Tax Lien FAQ

I. Basics: What is a Tax Lien?

What is a tax lien?

A tax lien is a legal claim by a government entity against a taxpayer's assets, typically for unpaid taxes, that can affect the taxpayer's ability to sell or refinance the property until the debt is resolved.

What is a federal tax lien?

A federal tax lien is the government's legal claim against all of your property, including property you acquire later, when you don't pay a tax debt after the IRS assesses it and sends you a bill. It secures the debt, and once the IRS files a Notice of Federal Tax Lien, it generally ranks ahead of creditors whose claims are recorded after it.

What is a state tax lien?

A state tax lien is a legal claim by a state government against a taxpayer's property due to unpaid state taxes, which can affect the taxpayer's ability to sell or refinance the property until the debt is resolved.

What is a tax lien notice?

A Notice of Federal Tax Lien is the public document the IRS files with your county recorder or secretary of state to tell creditors that the government has a legal claim to your property for an unpaid tax debt. The lien itself arises automatically once the IRS assesses the tax, bills you and you don't pay; the notice is what makes it public. Within five business days of filing, the IRS must mail you Letter 3172, which explains your right to a Collection Due Process hearing.

What is a tax lien judgment?

At the federal level there is no "tax lien judgment": the IRS doesn't need to sue you or get a court judgment to create a lien. A federal tax lien arises automatically when the tax is assessed, you're billed and it goes unpaid. Some states work differently and record a tax warrant that, once filed, has the same effect as a court judgment against you. A judgment lien, by contrast, comes from a lawsuit and a court order.

What is the statute of limitations on a tax lien?

The statute of limitations on a federal tax lien is generally 10 years from the date the tax is assessed, after which the lien is typically released if the tax debt is not collected.

II. Impact on Credit and Finances

How does a tax lien affect my credit score?

A tax lien generally will not directly lower your credit score because the major credit bureaus (Equifax, Experian, TransUnion) stopped including them on credit reports in 2018. However, a tax lien is a public record that lenders can still find, which may cause them to deny loans or charge higher interest rates.

How long does a tax lien stay on my credit report?

It shouldn't appear at all. Since April 2018, Equifax, Experian and TransUnion no longer include tax liens on consumer credit reports, whether the lien is paid or unpaid. The Notice of Federal Tax Lien is still a public record at the county, though, so mortgage lenders and title companies can find it when you apply for a loan or sell property.

What are the consequences of having a tax lien?

A federal tax lien attaches to everything you own now and acquire later, and it becomes a public record. That makes it hard to sell or refinance real estate and can make lenders reluctant to extend credit. The lien itself doesn't take anything; seizing wages, bank accounts or property requires a separate levy. But an unresolved lien is often followed by levy action, so it's the time to set up a resolution.

What happens if I ignore a tax lien?

The lien stays in place, the balance keeps growing with interest and penalties, and the lien attaches to property you acquire later. It generally won't show up on your credit reports, since the major bureaus stopped reporting tax liens in 2018, but lenders and title companies will find it in public records, so selling or refinancing becomes difficult. Ignoring the underlying debt also leads to levies: after a final notice of intent to levy (such as Letter 1058 or LT11), the IRS can seize wages, bank accounts and other property. The IRS generally has 10 years from assessment to collect.

How does a tax lien affect a business?

A tax lien can significantly impact a business by damaging its credit rating, making it difficult to secure financing, and potentially leading to the seizure of assets if the debt is not resolved.

III. Liens vs. Levies and Other Claims

What is the difference between a tax lien and a tax levy?

A tax lien is a legal claim by the government on a taxpayer's property due to unpaid taxes, serving as a security for the debt, while a tax levy is the actual seizure of the taxpayer's property or assets to satisfy the tax debt.

What is the difference between a tax lien and a judgment lien?

A tax lien is a legal claim by the government on a property due to unpaid taxes, while a judgment lien is a court-ordered claim on a debtor's property as a result of a lawsuit for unpaid debts.

What is the priority of a tax lien compared to other liens?

A federal tax lien generally follows the rule of "first in time, first in right": it ranks behind mortgages and other liens recorded before the IRS filed its Notice of Federal Tax Lien, and ahead of most liens recorded after. Some interests can still take priority over a filed federal lien, including local property tax liens and certain purchasers. The IRS can also agree to subordinate its lien (Form 14134) so a lender can move ahead of it.

IV. Resolution: Removal, Payoff, and Settlement

How can I remove a tax lien from my property?

Paying the balance in full removes the lien: the IRS must release it within 30 days. You can also ask the IRS to withdraw the public notice of the lien by filing Form 12277. Withdrawal is available if, for example, you owe $25,000 or less and have made three consecutive payments on a direct debit installment agreement, the lien was filed early or against IRS procedures, or withdrawal will help you pay the debt. To clear the lien from a single property you're selling, request a discharge (Form 14135). To let a lender go ahead of the IRS so you can refinance, request a subordination (Form 14134).

What are the steps to resolve a tax lien?

To resolve a tax lien, you should first pay the full amount owed to the IRS, which will result in the release of the lien. If full payment is not possible, you can consider setting up a payment plan, applying for an Offer in Compromise, or requesting a lien withdrawal if you meet certain criteria.

How do I pay off a tax lien?

To pay off a tax lien, you can either pay the full amount owed directly to the IRS or negotiate a payment plan. Additionally, you may consider applying for a discharge of property, subordination, or withdrawal to manage the lien's impact on your finances.

What is a tax lien payoff?

A tax lien payoff is the process of paying the full amount owed on a tax lien, including any interest and penalties, to remove the lien from a property and clear the owner's tax debt.

What is a tax lien release?

A tax lien release is a document issued by the government that officially removes a tax lien from a property, indicating that the taxpayer has satisfied the debt owed to the government.

What is a tax lien waiver?

"Tax lien waiver" isn't an IRS term. When the debt is paid or can no longer be collected, the IRS issues a Certificate of Release of Federal Tax Lien, generally within 30 days. Other relief is available without paying in full: a withdrawal removes the public notice (Form 12277), a discharge removes the lien from a specific property (Form 14135), and a subordination lets another creditor go ahead of the IRS (Form 14134).

What is a tax lien redemption?

Redemption usually refers to local property taxes. When a county sells a tax lien certificate or the property itself for unpaid property taxes, the owner generally has a set period to pay the back taxes, interest and fees and keep the property. IRS liens work differently: the IRS doesn't sell lien certificates, and if it seizes and sells real estate, the owner can redeem it within 180 days of the sale by paying the purchase price plus interest at 20% a year.

How can I prevent a tax lien from being placed on my property?

The IRS generally files a Notice of Federal Tax Lien after it has sent a bill and the balance goes unpaid, most often when you owe more than $10,000. The surest way to avoid one is to act before that happens: file every required return, respond to IRS notices such as CP14 and CP504, and pay in full or set up an installment agreement as early as possible. If you can't pay, talk to a tax attorney about your options before the IRS moves to collect.

V. Property Sales and Refinancing

How do I find out if there is a tax lien on my property?

To find out if there is a tax lien on your property, you can check with your local county recorder, clerk, or assessor's office, as they maintain public records of property liens. Additionally, you can use online databases or hire a title company to conduct a lien search for you.

How does a tax lien affect the sale of a property?

A tax lien can complicate the sale of a property by encumbering the title, requiring the lien to be satisfied or resolved before the property can be sold or transferred to a new owner.

How does a tax lien affect refinancing a mortgage?

A tax lien can significantly hinder mortgage refinancing because lenders typically require clear title to the property, meaning all liens must be resolved before refinancing can proceed.

What is a tax lien subordination?

A tax lien subordination is a process in which the IRS agrees to subordinate its tax lien to another lien, typically to facilitate refinancing or the sale of a property, thereby allowing the taxpayer to secure a loan or mortgage that would otherwise be blocked by the tax lien's priority.

How does a tax lien affect a home equity loan?

A tax lien can significantly impact a home equity loan by making it difficult to obtain or refinance, as lenders view tax liens as a risk, potentially leading to higher interest rates or loan denial.

How does a tax lien affect a title search?

A tax lien can significantly affect a title search by clouding the title, creating a legal claim against the property that must be resolved before the property can be sold or refinanced. It indicates that the property owner owes unpaid taxes.

How does a tax lien affect inheritance of property?

A federal tax lien doesn't end when the taxpayer dies. It stays attached to the property, so heirs generally receive it subject to the lien, and the executor should pay the tax debt from estate assets before distributing property. If the property is sold, the lien is usually paid from the proceeds at closing, and the IRS can discharge the lien from a specific property (Form 14135) when the sale pays the IRS its share. Unpaid federal estate tax creates its own automatic lien on the estate's assets for 10 years.

How do I check for tax liens on a property before buying?

To check for tax liens on a property before buying, you can search public records at the county recorder's office, use online databases provided by the county or state, or hire a title company to conduct a title search.

VI. Legal Procedures and Disputes

Can a tax lien be negotiated or settled?

Yes, a tax lien can often be negotiated or settled through various means, such as payment plans, offers in compromise, or lien subordination, depending on the taxpayer's situation and the taxing authority's policies.

How do I negotiate a tax lien settlement?

The main way to settle IRS tax debt for less than you owe is an Offer in Compromise (Form 656). The IRS generally accepts one when there's doubt it can collect the full amount based on your income, expenses and assets, when there's doubt you owe the tax, or when collecting in full would cause economic hardship or be unfair. The lien stays in place while the offer is pending and is released once you pay the accepted amount. If you don't qualify, an installment agreement or a lien withdrawal, discharge or subordination can reduce the lien's impact.

Can a tax lien be contested?

Yes. After the IRS files a lien notice, you can request a Collection Due Process hearing with the IRS Independent Office of Appeals by filing Form 12153 by the deadline in Letter 3172. You can also use the Collection Appeals Program, or ask the IRS to release a lien filed in error, for example when the tax was already paid or discharged in bankruptcy. You can challenge whether you owe the underlying tax in a Collection Due Process hearing only if you didn't have an earlier chance to dispute it.

How do I dispute a tax lien?

To dispute a tax lien, you should first verify the accuracy of the lien by reviewing your tax records and the notice from the IRS. If you find discrepancies, you can request a lien withdrawal by providing evidence of the error to the IRS, or you may appeal the lien through the IRS Collection Appeals Program (CAP).

How do I appeal a tax lien?

To appeal a tax lien, you should first contact the IRS or your state tax authority to understand the specific reasons for the lien and gather all relevant documentation. Then, you can file a formal appeal or request a Collection Due Process hearing, where you can present your case and negotiate a resolution or payment plan.

Can a tax lien be transferred to another person?

Not an IRS lien. The IRS doesn't sell or assign federal tax liens to investors; the debt stays with the IRS until it's paid, released or the collection period expires. What investors buy at "tax lien sales" are local property tax lien certificates, which some counties sell for unpaid property taxes. The buyer can collect the back taxes plus interest and, if the owner doesn't redeem in time, may be able to foreclose or take title. The rules vary by state.

Can a tax lien be discharged in bankruptcy?

A tax lien itself cannot be discharged in bankruptcy, but the underlying tax debt may be discharged if it meets certain criteria, such as being old enough and properly filed. However, the lien remains attached to the debtor's property, meaning the IRS can still enforce it against the property even after the bankruptcy discharge.

How do I know if a tax lien has been released?

To determine if a tax lien has been released, you can check with the county recorder's office or the IRS, where the lien was originally filed, for a release document indicating the lien has been satisfied.

How do I report a tax lien on my taxes?

To report a tax lien on your taxes, you generally do not need to take any action on your tax return itself, as a tax lien is a claim by the government on your property due to unpaid taxes and is not directly reported on your tax return. However, you should address the underlying tax debt that led to the lien by either paying it off or setting up a payment plan with the IRS.