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  • Brian Barto, EA

I Just Received a Notice of Federal Tax Lien. What is that? What Do I Do Now?



We often get calls from concerned clients in Winchester, VA, or Martinsburg, WV who have just received IRS letters. These letters are often difficult to decipher. The IRS seems to communicate in a foreign language. The good news is; we speak IRS.

Many of these calls are from frantic taxpayers needing help with a federal tax lien. The federal tax lien gives the IRS a legal claim to all of the taxpayer’s property for the amount of the tax liability. The federal tax lien arises when the tax liability has been assessed, a demand is made for its payment, and the taxpayer does not pay it.

If you owe more than $10,000 in back taxes to the IRS, they will issue a Notice of Federal Tax Lien “NFTL”. The Notice of Federal Tax Lien alerts creditors that the IRS has an interest in the property owned or acquired by the taxpayer. The NFTL is filed with the land records where the taxpayer resides and with the Secretary of State in the taxpayer's state of residence. Essentially, the Notice of Federal Tax Lien “perfects” the tax lien and provides priority over subsequent liens.

A Notice of Federal Tax Lien is a document filed with the local recording office that identifies tax liabilities owed by the taxpayer. Each notice of lien document can reflect up to 15 different tax liabilities that have been assessed. Filing the Notice of Federal Tax Lien (or “notice of lien”) is necessary to establish priority rights against certain other creditors. If the taxpayer owes money to other creditors, they may also hold liens or secured rights against a taxpayer’s assets. By filing the Notice of Federal Tax Lien, other creditors are put on notice that the United States government has a claim against all property, and any rights to property, of the taxpayer. This includes property owned at the time the notice of lien is filed or acquired thereafter. This notice is used by courts to establish priority in many situations, including bankruptcy proceedings or sales of real estate.

Once the debt is paid off the IRS will send a letter saying they will release the lien in 30 days now that the tax debt has been paid. The lien will also be released if an Offer-in-Compromise is filed and accepted. Once the taxpayer pays the “offer” amount, the remaining debt is forgiven and the lien is released.

A federal tax lien usually releases automatically 10 years after a tax is assessed if the statutory period for collection has not been extended and the IRS does not extend the Notice of Federal Tax Lien by refiling it. When a lien is self-released, the Notice of Federal Tax Lien itself is the release document. The lien is self-released if:

• the date for refiling has passed, and

• the IRS has not refiled the Notice of Federal Tax Lien.

Taxpayers should check the column titled “Last Day for Refiling” on the Notice of Federal Tax Lien to determine the lien self-release date. Note that since a notice of lien may include multiple liabilities, each will have its own self-release point. The notice of lien will not be considered fully released until all the liabilities shown have been satisfied or self-released.

We also get calls asking how to get a lien withdrawn. Is this possible? Yes, it is, if the following criteria are met. If the taxpayer owes less than $25,000, has a direct debit Installment Agreement in place, and has made at least 3 payments, he/she can file for a Lien Withdrawal. This is accomplished by filing Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien.

At Tax Debt Resolution Services of Winchester VA, our mission is to help you eliminate your IRS issues and the stress the IRS has created in your life and help you get back to doing what you do best! We help our clients in Winchester VA, Strasburg VA, Martinsburg WV, and Charles Town WV to resolve their tax debts! If you need assistance please feel free to contact me at 540-662-4432 or brianbarto@libertytax.com.

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