Getting a Lien/Levy Released

Once a taxpayer has a lien or levy in place (isn’t this where we usually come in?), the representatives primary job is to try and get the lien/levy released. There are many ways to do this. First and foremost is to get the taxpayer to pay the balance due, assuming we have determined he actually owes it.

Liens are usually “self-releasing” after the CSED date has passed. When the IRS files a lien the Form 668Y, Notice of Federal Tax Lien, has a section to let the party the lien is filed with the release date. If the CSED is extended for some reason after the filing of the Form 668Y the IRS will re-file the Lien with a new release date.

There are several ways to remove a lien if the debt is not paid in full. A Form 12277, Application for Withdrawal of Filed Form 668Y, Notice of Federal Tax Lien may be filed for the taxpayer. The IRS Fresh Start initiative has made it easier for the Collections Division to withdraw liens in conjunction with that program. The withdrawal of the lien is the best case for your client as it has the effect of saying the lien never happened. Reasons for the IRS to release the Lien based on this application include:

1. The NFTL was filed prematurely or not in accordance with IRS procedures. (going back to “Did they follow their own rules?” above)
2. The taxpayer has entered into an installment agreement to satisfy the liability and the agreement did not provide for a NFTL to be filed.
3. Withdrawal will facilitate collection of the tax. (the lien is probably hampering the sale of the property to pay the debt)
4. The taxpayer believes the withdrawal is in the best interest of the taxpayer and the government.

The IRS may also issue a Certificate of Discharge of a Property from Federal Tax Lien. This usually occurs when the property involved is being transferred to another owner, the liability has been partially satisfied, when the property under lien has no FMV, or when the equity in other assets under lien are equal to twice the value of the lien.

The IRC also provides for the subordination of a NFTL if it will enable a private party to provide funding to satisfy the liability or the value of the property will enhance the governments position. This process makes the FTL secondary to another lien.

If a taxpayer believes the lien has been applied in error then they may apply for a Certificate of Non-attachment of Federal Lien.

If the government determines they have released a lien in error, the taxpayer failed to comply with payment or collateral arrangements, or the lien was not discharged through appeal or litigation, they may revoke the release of the lien using Form 12474-A, Revocation of Certificate of release of Federal Tax lien.

Any time that a release of FTL has been received, under whatever circumstances, it is important that the taxpayer request in writing the the IRS notify all third parties, agencies, and creditors of the release. This will alleviate many of the problems the filing of the lien caused the taxpayer in the first place.

When talking about getting a levy released or stayed the options are much more limited and other considerations come into play, such as the amount of the levy versus the amount of time left on the CSED, as we talked about earlier. The legal authority to release or partially release a levy covers circumstances including:

1. The liability is no longer owed
2. The CSED has expired
3. The release will facilitate collection of the liability
4. The levy is creating an economic hardship
5. The FMV of the property is more then the amount owed and a partial release is available.
6. The taxpayer is in an installment agreement that did not allow for the levy.

Other ways to get a levy released that can be considered include, filing bankruptcy, entering into a streamlined (Fresh Start) installment agreement, making an Offer in Compromise, or filing an Innocent Spouse claim. While all of these thing stay the imposition of a levy, they should not be filed in a manner that may be considered frivolous as sanctions again you and the client can be assessed. Representatives also need to be cognizant of actions which toll the CSED statute and which ones don’t.

1. Offer in Compromise – Extends the statute
2. CDP and Appeals to CDP – Extends the statute
3. CAP – does not extend the statute
4. Bankruptcy – Extends the statute
5. Installment Agreements – does not extend the statute
6. Appeals of rejected or terminated Installment Agreements – Extends the statute
7. Voluntary waiver – extends the statute
8. IRS Suit to Bring the Liability to Judgment – Extends the statute
9. Client is out of the country more then six months – Extends the statute
10. Innocent Spouse – Extends the statute
11. Taxpayer Assistance Order – Extends the statute

Next:  Conclusion – Other Options For The Client