What Is The Difference Between A Federal Tax Lien And A Notice Of Federal Tax Lien?

There’s an important distinction between the federal tax lien and the Notice of Federal Tax Lien. The federal tax lien automatically applies to all of your property when you fail to pay taxes after a demand for payment. The Notice of Federal Tax Lien is an official record that gives the public notice of the lien.

The Notice of Federal Lien needs to be filed with state or local authorities, such as the country recorder of deeds. When the IRS removes the notice from public records, it is referred to as a “withdrawal.”

Eligibility for Lien Withdrawal

There are some procedural situations that can cause the IRS to withdraw the lien notice. The notice will be withdrawn if it was filed during a bankruptcy automatic stay period or if the IRS failed to follow their own procedures.

The IRS also has the discretion to withdraw the lien if it will facilitate payment or if it is in the best interest of the taxpayer and the government. You’ll need to explain how the lien withdrawal will allow you pay more of your tax debt off when you submit the lien withdrawal request.

Finally, the IRS will withdrawal lien notices for taxpayers in some types of installment agreements. The following criteria must be met for lien withdrawal eligibility:

• Direct debit installment agreements only. If you have another type of installment agreement, you can convert to a direct debit agreement.
• You must owe $25,000 or less.
• Your agreement must provide for full payment within 60 months or by the time the collections statute expires, whichever comes sooner.
• Maintain filing and tax payment compliance.
• Make at least three direct debit payments.
• No defaults on current or previous direct debit agreements are permitted.

You’ll still need to request the lien withdrawal by filing Form 12277.

Release, Discharge, And Subordination

In addition to lien withdrawals, liens can be released, discharged, or subordinated. The lien release fully removes the federal tax lien from all of your property. Liens can be released when you pay your tax debt in full, satisfy the terms of an accepted Offer in Compromise, or if the collections period has expired.

Discharges and subordinations only apply to a specific piece of property. These are usually granted when you need to sell or refinance property and you convince the IRS that the discharge or subordination will help you pay your tax debt. You can also pay the IRS an amount equal to the lien interest they are sacrificing.

Have a tax defense question? Ask  Tax Lawyer Venar Ayar.