You received notice of a federal tax lien

What a lien is, and what it is not

A federal tax lien is a legal claim against all of your property when you fail to pay a tax after the IRS has assessed it and sent notice and demand. By law, the unpaid amount, with interest, additions, penalties and costs, becomes a lien on all property and rights to property you have.

The Notice of Federal Tax Lien, often shortened to NFTL, is a different thing: a public filing that alerts creditors. The law says the lien is not valid against certain third parties, such as a purchaser or a holder of a security interest, until that notice is filed. A lien is also not a levy. A lien claims your property; a levy takes it. The notice may limit access to credit, which is why people often feel its effects before any collection action.

Your window to ask for a hearing

After the IRS files an NFTL, it must notify you in writing no later than 5 business days after the filing. The notice must explain your right to request a Collection Due Process hearing during a 30-day window that starts the day after that 5 business day period ends. Your notice shows the exact date, so look for it first.

You request the hearing on Form 12153, sent to the hearing address on the notice rather than a payment address. A reason for the hearing is required. Attach a copy of the notice, and if you are proposing an alternative such as a payment plan, financial statements. The Independent Office of Appeals considers collection alternatives and considers the underlying liability only if you had no earlier chance to dispute it. If you miss the window, a later request may still receive an equivalent hearing, but without court review.

Ways a lien can be lifted or eased

These four terms get mixed up, and they do very different things.

• Release: the lien is lifted. The IRS page says this follows payment in full, and that it generally happens within 30 days of payment.
• Withdrawal: the public notice is removed, as if it had not been filed, but the debt remains. The law lets the IRS withdraw a notice in certain situations, including a premature or improper filing, an installment agreement, or when it would help collection. On written request the IRS must make reasonable efforts to tell credit agencies and named creditors.
• Discharge: the lien is removed from specific property, for example so that you can sell a house.
• Subordination: the IRS agrees to let another creditor rank ahead of it, which can help when refinancing or getting a loan.

Fresh Start withdrawal options

The IRS describes withdrawal options that apply to some people. They include a withdrawal after the lien has been released and you have stayed in compliance for three years, and one for qualifying direct debit installment agreements where the balance is $25,000 or less. Whether you qualify depends on your own account, so read the IRS lien page and ask the IRS what applies.

A sample situation

Suppose a landlord with a modest rental property learns of a lien filing when a lender asks about it. Her immediate questions are whether she can refinance and whether a hearing is still open. She would look at the date on the lien notice, think about a payment plan, and ask the IRS about subordination so that a new lender can be placed first. She would not expect the lien to disappear because she asked; it ends by release after payment, or in the specific cases that withdrawal covers.

Where a written response fits

A hearing request or a withdrawal request is easier to evaluate when your facts are organized: the notice date, the balance, your income and what you propose. IRS Audit Defense Pro is software that helps you organize your facts and draft a letter you review and send yourself. It is not a law firm, CPA or enrolled agent, and it cannot predict how the IRS will decide. If real estate or a business sale is involved, a qualified tax professional or attorney can advise on discharge and subordination.

Frequently asked questions

Sources

• IRS: Understanding a federal tax lien
• 26 U.S.C. 6320 (notice and hearing for lien filings)
• 26 U.S.C. 6323 (validity of lien; withdrawal)
• IRS: Collection Due Process FAQs

Related guides

• How to request a Collection Due Process hearingFind the Collection Due Process notice, note the deadline printed on it (generally about 30 days), complete Form 12153 with your reasons, attach what applies, and send it to the hearing address on the notice.
• How to set up an IRS payment planIf you cannot pay in full, the IRS offers short-term and long-term monthly payment plans.
• If the IRS has levied your bank accountAn IRS bank levy is a legal seizure of money in your account to pay a tax debt.
• What to do when you owe the IRS and can't pay it allIf you owe the IRS and cannot pay in full, file on time anyway, pay what you can, and contact the IRS about a payment plan, a pause in collection if you cannot cover basic living costs, or in some cases an offer in compromise.
• The Taxpayer Advocate Service: Help When an IRS Problem StallsThe Taxpayer Advocate Service is an independent office within the IRS that can help when an IRS problem is causing financial hardship, has gone unresolved for more than 30 days, or the IRS missed a promised date.
• CP504: a serious collection notice and how to respondA CP504 is an IRS collection notice about an unpaid balance that the IRS describes as a notice of intent to levy, including a state tax refund.