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Removal of a Federal Tax Lien

Liens can be especially troubling because they can be a block to an avenue that could be effective for paying your taxes. The reason for that is the lien removes your ability to transfer title to the property until the lien is satisfied or paid. Here is a brief summary of strategies that are available to remove liens.

The law gives four bases or grounds for removing the lien:

  1. The lien was not imposed in accord with the IRS's own procedures.
  2. The taxpayer has entered into an installment agreement and the agreement does not specifically provide for a lien.
  3.  Withdrawal of the lien would facilitate collection of the tax or in other words make it easier for the IRS to collect the tax owed.
  4. Withdrawal of the lien would be in the best interest of the IRS and the Taxpayer.

If you want to use your property as equity for a loan to pay the tax, the lien makes it impossible for you to borrow to pay your tax because the lien destroys your credit. Even though you have adequate equity in your home the banks are afraid to loan where there is a lien.

This is a catch 22 situation because, the bank would loan you the money if the lien was removed but their IRS won't remove the lien unless the tax is paid but you can't borrow the money to pay the tax until you remove the lien. This situation does not facilitate collection of the tax so under these circumstances withdrawal of the lien facilitates collection.

A similar situation occurs where you want to sell your home. Lets say you have enough equity in your residence so that there would be enough cash left over from the sale to pay the IRS but because there is a lien on the property you are unable to transfer clear title to the your buyer.   In this scenario the title company is not going to close the sale because of the encumbrance, so to close the sale the lien has to be removed. This is true even if the money is escrowed to pay the tax because the buyer will insist that the title is not clouded. What is important to understand is that the lien is not attached to you but to your property so if there is a lien on the property when it is sold, the lien goes with the property.

If the lien is withdrawn the title can transfer to the buyer making it possible for the title company to close the loan. Withdrawal of the lien facilitates tax collection in this situation.

Another solution might be for you to obtain a bond, which would guarantee your payment of the taxes from the proceeds of the sale enabling the tile company to transfer title and keep you in control. If the IRS were to seize your property they would sell it very fast. The result is your losing control of your property, greatly to your disadvantage.

Another tool for dealing with liens is a process called subordination. With this approach the IRS will subordinate a lien to the other creditor, which will avoid having your property sold in a fire sale.

There is another method called quiet title. You would file a suit in Federal court. You can actually do this without an attorney.

The administrative appeal is available but the circumstances where this would be effective are unusual.