The tax attorneys at Nardone Limited in Columbus, Ohio routinely advise taxpayers who have been contacted by an Internal Revenue Service (“IRS”) Revenue Officer. If a taxpayer neglects to pay a federal tax liability, the IRS has broad authority and tools to collect delinquent taxes, which includes the filing of a Notice of Federal Tax Lien. A Notice of Federal Tax Lien can cause a taxpayer significant financial harm, so it is crucial that taxpayers are aware of the various ways to obtain relief when an IRS Revenue Officer files a Notice of Federal Tax Lien.
What is a Notice of Federal Tax Lien?
A Notice of Federal Tax Lien is the notification to a taxpayer’s creditors that a lien has been placed by the U.S. Government on all of the taxpayer’s current and future assets. See Internal Revenue Code (“I.R.C.”) §6321. Unless the IRS files a Notice of Federal Tax Lien, the existence of the lien is kept private. A Notice of Federal Tax Lien can impact a taxpayer in a number of ways, such as disrupting the taxpayer’s employment or business, negatively affecting credit scores, and preventing the taxpayer from securing loans or lines of credit. Despite the negative impact a Notice of Federal Tax Lien may have, the IRS is reluctant to withdraw a Notice of Federal Tax Lien because the Notice of Federal Tax Lien protects the IRS’s interests in bankruptcy or litigation and ensures secured-creditor standing for the IRS. Ultimately, there are several ways for a taxpayer to resolve a lien issue, including: (i) paying your tax liabilities in full, then the IRS will release your lien within 30 days; (ii) requesting a Certificate of Discharge of Notice of Federal Tax Lien for specific property; (iii) requesting a Certificate of Subordination of Notice of Federal Tax Lien; and (iv) requesting a withdrawal of a Notice of Federal Tax Lien. We will be following up with additional articles to discuss the various resolutions relating to Notice of Federal Tax Liens. This article focuses on a withdrawal of a Notice of Federal Tax Lien.
Withdrawing a Notice of Federal Tax Lien
A withdrawal removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for your property, however, you are still liable for the amount due. The IRS may withdraw a Notice of Federal Tax Lien under certain circumstances despite the existence of outstanding taxes. See I.R.C. §6323. Specifically, these circumstances are limited to:
- If the notice was filed prematurely or not in accordance with IRS procedures;
- The taxpayer entered into an installment agreement to satisfy their liability for which the lien was imposed, and the agreement did not include the filing of a Notice of Federal Tax Lien;
- Withdraw of the Notice of Federal Tax Lien would help facilitate the collection of the tax liabilities owed; or
- Withdraw of the Notice of Federal Tax Lien is in the best interest of the taxpayer and the government.
A request for withdraw of a Notice of Federal Lien may be made by using Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. But, because of the protection the Notice of Federal Tax Lien provides, the IRS will likely be reluctant to withdraw a Notice of Federal Tax Lien. To increase the likelihood that the IRS will withdraw the Notice of Federal Tax Lien, a professional should carefully review the taxpayer’s specific facts and circumstances. Specifically, the taxpayer’s professionals should review applicable ethics standards, employment agreements, business dealings or any other business or personal situation, which demonstrates that the Notice of Federal Tax Lien will directly negatively impact the taxpayer’s ability to pay the IRS. If the IRS agrees, then the IRS will issue Form 10916(c), Withdrawal of Filed Notice of Federal Tax Lien. See Internal Revenue Manual (“I.R.M.”) §188.8.131.52. Ultimately, a withdrawal only removes the effect of a Notice of Federal Tax Lien and does not extinguish the underlying tax lien.
If the IRS ultimately withdraws the Notice of Federal Tax Lien, then upon the taxpayer’s written request, the IRS will also make reasonable efforts to notify credit reporting agencies, and any financial institution or creditors of the withdrawal, when their names and addresses are specified in the taxpayer’s request of the withdraw. I.R.C. §6323(j)(2). But, it is a good idea for the taxpayer to ultimately follow up with any credit reporting agencies and financial institutions to ensure they received the necessary correspondence from the IRS.
Contact Nardone Limited
Nardone Limited represents individuals and businesses with federal tax matters, including resolving issues relating to a Notice of Federal Tax Lien. If you have been contacted by an IRS Revenue Officer, contact one of our experienced tax lawyers today.