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Owing back taxes to the IRS is a harsh reality for many Americans. According to recent data, the IRS was owed a shocking $114 billion for the year 2020, which included delinquent taxes, penalties, and interest charges from nearly 14 million adults.
When taxes go unpaid, though, penalties and interest aren’t the only negative repercussions; there’s also the worry of a tax lien.
An IRS tax lien is a legal claim filed against your property in response to unpaid taxes. The IRS can file this federal claim against all sorts of assets, including your real estate, financial accounts, and personal property. While this lien can make it difficult to take out new credit-based accounts or sell your property, it doesn’t last forever, thankfully.
Here’s a look at how long an IRS lien lasts, when the statute of limitations runs out, and how you can get rid of a federal tax lien even faster.
In this article:
- Statute of limitations on a federal tax lien
- How to negotiate with the IRS to remove a tax lien
- What happens when a federal tax lien is removed?
Statute of limitations on a federal tax lien
Suppose a lien is placed on your home. If you try to use that property as collateral for a loan, other creditors will see that the IRS already holds a lien on the property or the first claim to any proceeds from it. This makes issuing your loan a bigger risk for the lender, and you may find that lenders are hesitant (or unwilling) to approve new accounts if such a lien is attached to your property.
But how long does a tax lien last? Well, without any further action on your behalf, an IRS tax lien will last at least 10 years and 30 days from the date of tax assessment. This means that for a decade or more, the federal government will hold the first claim on whichever assets the lien specified.
Once that statute of limitations—called the Collection Statute Expiration Date under Section 6502 of the Internal Revenue Code—expires, the Notice of Federal Tax Lien will automatically be withdrawn (called a self-release) from the property, and the lien’s claim on your asset ends.
But while this automatic release can occur without payment, it’s highly unlikely for most delinquent taxpayers. That’s because a federal tax lien can be extended as long as the IRS refiles the lien 30 or more days before it expires. If this happens, the lien will renew beyond the 10-year expiration date.
Can I remove an IRS tax lien sooner?
Thankfully, there are also ways of removing an IRS tax lien from your property before those 10 years have passed. Removing the lien(s) can make it easier to open credit-based accounts or sell your property.
Taking care of a federal tax lien also helps ensure that it doesn’t turn into a tax levy. Unlike a lien, which is simply a claim to your asset, a levy is the government’s actual seizure of your property to satisfy your tax debt.
There are a few different ways that a federal tax lien can be removed before reaching the 10-year mark. You can:
- Pay your tax bill. This one is perhaps easier said than done for many taxpayers. However, if you’re facing a delinquent tax bill (and any accompanying penalties, fees, and interest charges), the simplest and fastest way to get that lien removed is to pay the past-due amount. Once your tax debt is satisfied in full, the lien will be automatically released within 30 days.
- Request a withdrawal. Even if you’re unable to pay your tax debt (in part or in full), you may still be able to get the IRS to remove the public Notice of Federal Lien from your property. This option is available to eligible taxpayers who have entered into an installment plan, owe $25,000 or less, and/or have made a number of consecutive on-time payments. To apply for lien withdrawal, you’ll need to fill out and submit Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien.
- Request a discharge. Some taxpayers may be able to request that their lien be discharged as long as they (and their property) meet certain criteria. For instance, a lien may be discharged on one property if another lien remains on a property worth at least twice what the taxpayer owes. To apply for a lien discharge, you’ll need to fill out Form 14135, Application for Certificate of Discharge of Property from Federal Tax Lien.
Delinquent taxpayers can also request subordination of their tax lien. While this doesn’t remove the Notice of Federal Tax Lien—or the claim on the property—it can make it easier to get a loan, take out a mortgage, refinance your home, and more.
With subordination, the IRS agrees to let other creditors move to the front of the line when it comes to earmarking a property as collateral. This request is subject to eligibility and approval and requires the taxpayer to file Form 14134, Application for Certificate of Subordination of Federal Tax Lien.
How to negotiate with the IRS to remove a tax lien
So, how long does a federal tax lien last if you can’t pay your owed balance in full and don’t qualify for discharge, subordination, or withdrawal? Well, if you negotiate successfully with the IRS, you may be able to remove your tax lien early and get extra time to satisfy the debt.
Set up a payment plan. If you cannot pay your full tax debt all at once, you can apply online for a payment plan. There are two types of IRS plans to choose from: short-term and long-term.
Short-term plans are available for 180 days or less and are intended for taxpayers with less than $100,000 in combined delinquent taxes, fees, and interest. Long-term plans offer a much longer installment agreement but are only available to taxpayers who owe $50,000 or less combined.
Regardless of which plan you choose (and qualify for), you’ll continue accruing fees and interest on the debt until it’s fully paid. Short-term plans have a $0 setup fee, while long-term plans have a setup fee between $31 and $130 (unless you qualify for a low-income waiver). Fee-free payments can be made with a check, debit card, or money order; credit card payments may include processing fees.
Depending on the type of payment plan you agree to and other individual factors, the IRS may be willing to withdraw your lien notice while you continue to pay off the debt.
Make an Offer in Compromise. An Offer in Compromise, also known as an OIC, is an offer to settle your debt with the IRS for an amount less than you initially owed. If you’re unable to pay your full tax liability—or if paying this debt would cause significant financial hardship—an offer in compromise may be the best option for you and the IRS to clear the debt.
When considering OIC applications, the IRS will take into account several personal factors. These include your income, existing household expenses, assets, and equity, as well as your overall ability to pay the debt. You can prequalify for an OIC by answering a few questions online.
To file for an OIC, you’ll need to fill out several forms and submit a $205 nonrefundable application fee (waived for qualified low-income applicants). You’ll also need to send an initial payment for the agreement you’re offering (also nonrefundable). OICs can be set up as a lump-sum payment or paid out in installments.
Delinquent taxpayers with a current bankruptcy filing are ineligible for an OIC. If the IRS does not make a determination on your application within two years, it’s automatically accepted. Any tax return due to you that same calendar year will be applied to your tax debt as well.
What happens when a federal tax lien is removed?
The lien will be removed automatically once your tax debt is satisfied, the lien filing expires, or your request for withdrawal/subordination/discharge is approved. This process can vary in length depending on how the lien is removed and other factors involved in your request.
For delinquent taxes paid in full, the lien will be automatically withdrawn in 30 days or less. The taxpayer doesn’t need to do anything else.
In other instances, you may need to file a request for the lien to be removed completely from your property, which involves filing Form 12277. Taxpayers will be asked to send a copy of the lien notice they want to be removed, provide personal information, and, essentially, explain why you believe the lien should be withdrawn.
The IRS will contact you to let you know if and when your lien notice has been removed. You’ll also receive a copy of the withdrawal notice, as will any third parties (such as credit reporting agencies, lenders, or financial institutions) that were included in the request.
Not sure where to start or whether you have the most accurate information on your tax lien? If you need your lien verified or released or need to get your lien payoff total, the IRS recommends contacting the Centralized Lien Operation department at 800-913-6050. A federal tax lien can be a frustrating—and sometimes scary—situation, but it commonly occurs when a tax debt goes unpaid. Taking care of that tax lien in some way is important—not only for your current financial goals but also to avoid having it progress into a levy.
Author: Stephanie Colestock