A federal tax lien, sometimes called a “statutory lien,” is the government’s legal claim against a taxpayer’s property when the taxpayer neglects or fails to pay a tax debt. To provide notice to creditors, the IRS files a public document, Form 668(Y), Notice of Federal Tax Lien.
Internal Revenue Code (IRC) § 6323(j) provides the Internal Revenue Service (IRS) with the authority to withdraw a Notice of Federal Tax Lien (NFTL) under certain circumstances. A withdrawal removes the public NFTL, which assures creditors that the government is not competing with them for a taxpayer’s property. However, a withdrawal does not extinguish the taxpayer’s outstanding tax liability.
A taxpayer’s request for a withdrawal must be made in writing. Generally, a taxpayer requests the withdrawal using Form 12277, Application for Withdrawal of Filed Form 668(Y), and Notice of Federal Tax Lien.
The various scenarios in which the IRS may withdraw an NFTL are briefly discussed below.
Premature or Non-Compliant Filing
If the IRS’s filing of the NFTL was premature or in violation of IRS administrative procedures, it may be withdrawn. [1] Examples of such instances include but are not limited to:
(i) the filing of a NFTL in violation of the automatic stay in bankruptcy;
(ii) the filing of a NFTL while the taxpayer is in a Combat Zone; or
(iii) the filing of an NFTL by an IRS representative who knows or should have known about available credits.
Taxpayer Entered Into Installment Agreement
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