Help Your Client with Their Federal Tax Lien

Is your client selling or refinancing property while they have a Federal Tax Lien? Here we explain information you need on how to get their lien notice withdrawn, how a lien affects your client, how your clients can avoid a lien and the difference between and lien and a levy.


Helping Your Client Understand A Federal Tax Lien

A federal tax lien is the government’s legal claim against your client’s property when they neglect or fail to pay a tax debt. The lien protects the government’s interest in all their property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:

·         Assesses your liability;

·         Sends you a bill that explains how much you owe (Notice and Demand for Payment); and

·         You neglect or refuse to fully pay the debt in time.

The IRS then files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property.


How to Get Rid of Your Client’s Lien

Your client paying their tax debt – in full – is the best way to get rid of a federal tax lien. The IRS releases the lien within 30 days after they have paid their tax debt.


Options: When conditions are in the best interest of both the government and the taxpayer, other options for reducing the impact of a lien exist.

·         Discharge of property — Allows property to be sold free of the lien. The seller or buyer can submit Publication 783, Instructions on How to Apply for Certificate of Discharge From Federal Tax Lien .

·         Subordination — Does not remove the lien, but allows other creditors to move ahead of the IRS, which may make it easier to get a loan or mortgage. For more information review Publication 784, Instructions on How to Apply for a Certificate of Subordination of Federal Tax Lien.

·         Withdrawal — Removes the public notice and assures that the IRS is not competing with other creditors for your client’s property. If applying for a withdrawal, use Form 12277, Application for the Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. 


How a Lien Affects Your Client

·         Assets — A lien attaches to all of your client’s assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.

·         Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your client’s ability to get credit.

·         Business — The lien attaches to all business property and to all rights to business property, including accounts receivable.

·         Bankruptcy — If your client = files for bankruptcy, their tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.


Helping Your Clients Avoid a Lien

Your clients can avoid a federal tax lien by simply filing and paying all of their taxes in full and on time. If they cannot file or pay on time, tell them to not ignore the letters or correspondence they receive from the IRS. If they cannot pay the full amount they owe, payment options are available to help settle their tax debt over time.


Lien vs. Levy

A lien is not a levy. A lien secures the government’s interest in your client’s property when they don’t pay their tax debt. A levy actually takes the property to pay the tax debt. If your client does not  pay or make arrangements to settle their tax debt, the IRS can levy, seize and sell any type of real or personal property that they own or have an interest in.