What does a federal tax lien do?
You found out that there is an IRS tax lien on you. You need IRS tax lien help! One of the very first questions you’ll likely have (besides how to get an IRS lien removal or IRS tax lien release) is, will the federal tax lien impact your credit?
Practically speaking – no. Because an IRS tax lien does not show up on your credit report.
However, if you go to buy a house and plan on getting a mortgage, the bank underwriter will likely want you to get a federal tax lien release before closing the loan.
Keep in mind, this is not technically required. The IRS has long-standing policy that you can get a mortgage (not a home equity loan or cash-out refi) on a home you purchase, even if you have a federal tax lien.
Typically, the bank is going to want you to be on a payment plan with the IRS and show proof that you have made at least three months of payments. If they make an issue of this, it is always best to reach out to an attorney for IRS tax lien help.
The next question we get often is can I sell my home if there is a federal tax lien on it?
The short answer is, yes, you can sell your home even if there is an IRS tax lien on it. The IRS has an IRS tax lien release option known as a discharge (or a subordination if you are doing a refinance to pay off the irs lien).
If you expect to get money from the sale of your home, the IRS will do the federal tax lien release. However, they’ll want almost all of that money at closing (up to the amount you owe the IRS). You can exclude moving expenses and get that at closing.
If you don’t want your money going to the IRS at closing, you may be asking yourself then, how to remove a tax lien from your home? Great question. Read on to find out how.
How to get an IRS tax lien release
There are four ways to get IRS lien removal.
- Offer in Compromise. If you settle your back tax with the IRS through an IRS Offer in Compromise, the federal tax lien will be automatically released when you pay your final Offer payment within 90 days.
- Subordination/Discharge. If you are going to sell your home and give the proceeds to the IRS (or, if there is no equity, then that’s still not an issue) OR if you are going to do a refinance and pay down your IRS debt, then a subordination or discharge will satisfy the federal tax lien release on that particular asset (house).
- IRS Lien Removal. The IRS lien withdrawal process will remove the tax lien if you can show that the IRS lien may impact your income. For example, if you are a real estate agent, you may have to disclose the IRS lien on your license. This may affect your ability to remain a realtor. Thus, impact your ability to earn money. Thus, your ability to pay your back tax. Under these limited circumstances, the IRS may do a federal tax lien release.
- Direct Debit Installment Agreement IRS Lien Removal. Under this exception, if you owe less than $25,000 and are on a direct debit payment plan, the IRS may do the IRS tax lien release. However, you’ll need to full pay your tax within 6 years. Also, make sure you’ve never defaulted on the direct debit installment agreement before.
How long before IRS lien removal?
Of course, if you don’t do anything, the IRS tax lien will eventually fall off. Generally, this occurs when you have either paid your entire IRS back tax balance or the IRS writes it off.
If a federal tax lien has been paid, but there is another year with a balance, the IRS tax lien will still remain active.
Have a federal tax lien and are looking for legal representation for your IRS lien removal? Reach out to our federal tax lien release attorneys. Schedule your free case analysis today.