Outstanding Federal Tax Lien Against You May Not Even be Valid or Enforceable but it is Up to You to Get it Released - IRS Will Not Do It For You

I probably get more calls about federal tax liens than any other tax issue. While not as immediate or acute as a tax levy, a federal tax lien can have a serious impact on one's everyday personal and business affairs. For instance, a federal tax lien filed against you in the public records can (i) prevent you from getting that dream job or much-needed loan, (ii) prevent you from selling your personal residence or investment property, (iii) reduce your FICO credit score by as much as 100 points, resulting in much higher interest rates/charges on mortgages and other personal and business loans and (iv) for those in business/financial fields, reflect poorly on your financial/business acumen, thus discouraging potential clients/employers from using your services.

The IRS generally files federal tax liens against taxpayers that owe more than $10,000 in federal income or employment taxes. The taxpayer gets notice of the tax lien within five business days after the lien is filed and the lien generally remains on the public records until the tax liability is satisfied, either by full payment or an offer in compromise. Once the liability is satisfied by the taxpayer, the IRS will normally file within 30 days a certificate of lien release in the public records of the county where the original tax lien was filed. This certificate of lien release gives notice to the world that the taxpayer has satisfied the underlying federal tax liabilities and effectively releases the tax lien. However, sometimes the IRS fails to file the certificate of lien release after the related tax liability has been satisfied. Therefore, you should always follow up the resolution of your federal tax liability by checking your county's official records to confirm that the certificate of lien release has been filed.

Even though the IRS normally releases the federal tax lien once the underlying tax liability has been fully satisfied or settled, there are other instances where the underlying tax liability is equally void and uncollectible/unenforceable but the IRS takes no unilateral action to formally release the related federal tax lien. One such scenario is when the IRS is legally prohibited from collecting the tax liability because the applicable 10-year statute of limitations on collection has expired. Here, the current IRS policy is to take no action regarding the filing of a certificate of lien release or otherwise releasing the tax lien, probably because they are ticked off that the taxpayer stiffed them on the unpaid tax liability and see no reason to help the taxpayer by filing a lien release. In these cases, it is up to the taxpayer to monitor the legal status/collectability of the tax liability and take appropriate action to effectively release the tax lien once the tax liability is no longer legally collectible.

While it is always preferable to have a certificate of lien release filed in the public records once you resolve your federal income tax liability, a lien release may not be absolutely necessary in some cases. This is due to the fact that federal tax liens are sometimes "self releasing", meaning that the lien releases automatically and on its own under certain conditions, including the situation referenced above where the applicable 10-year statute of limitations on collection has expired. In these situations, it may not be necessary to have the lien formally released via a certificate of lien release. Of course, you will have to "educate" the lender, title agent, etc. regarding the occurrence of these conditions and the "self releasing" nature of the tax lien in question. This may come in handy if you are at, or preparing for, a real estate or loan closing and a federal tax lien issue is raised at the last minute. With time of the essence and obtaining a certificate of lien release from the IRS not an option, you may be able to convince the lender/title agent that the federal tax lien has "self released" and, therefore, the filing of a certificate of lien release is not necessary.

If you have a federal tax lien against you which you believe should have been released, feel free to give me a call for a consultation regarding the actions required in order to formally release the federal tax lien or successfully assert a "self releasing" position/argument.


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