How to Release a Federal Tax Lien: Get Free from IRS Tax Liens

A release is when the IRS removes its legal claim to your assets  -- in other words, the tax lien stops existing. To get an IRS tax lien released, you generally must pay off the tax liability in full, the collection period for the tax must expire, or you must prove that you don't really owe the tax. Keep reading for more details and a look at your options if you don't qualify for a lien release. Or use TaxCure to find a tax pro today. Start your search in the box, and then filter your results to find a pro who has experience with tax liens. 

Key takeaways

• Lien release -- When the IRS lifts your obligation to pay the taxes associated with the lien.
• Public record -- Even if the lien is released, a public record of the lien may continue to exist. 
• Lien withdrawal - When the IRS removes all public record of the lien. 
• Withdrawal after release - The IRS will withdraw the lien once it's released if you stay compliant with filing and payment obligations for three years and are up to date on all payments and deposits. 
• Withdrawal without release - Even if the lien still exists, the IRS may release it from the public record if you owe less than $25,000, set up direct debit payments, and make three monthly payments, or if you meet other conditions.

What Is a Tax Lien Release?

A tax lien release is when the IRS no longer holds you responsible for paying the taxes related to a tax lien. Once released, the lien is no longer attached to your assets, but a record of the lien may continue to exist until the IRS withdraws the notice of federal tax lien. 

How to Get a Tax Lien Released

Typically, the only way to get a lien released is to pay the tax debt in full. Once that happens, the IRS will file a Certificate of Release, but if a Notice of Federal Tax Lien was filed, that public record may continue to exist unless the IRS withdraws the lien (more on that below). Additionally, the IRS will also release the lien if you:

• Settle Taxes Through an Offer in Compromise - An offer in compromise (OIC) gives you the opportunity to settle your taxes for less than you owe. You have one of two options: making a lump sum payment within five (5) months of acceptance or electing to pay off the settlement amount over two years. If you meet the payment requirements on an Offer in Compromise, the IRS will release the tax lien.
• Let the Statute of Limitations Expire - Like most liabilities, IRS taxes have a statute of limitations on collection, and if the Collection Statute Expiration Date arrives, the IRS can no longer enforce the tax lien. Typically, federal taxes expire 10 years after you file your return or after the IRS assesses the taxes owed. The IRS usually extends the statute of limitations on collection if you file bankruptcy, you file an offer in compromise, or if you sign Form 900 (Tax Collection Waiver).
• Give the IRS a Bond Guaranteeing Payment - You can also post a bond guaranteeing payment. It has the same effect in many cases as paying your taxes in full. Taxpayers rarely leverage surety bonds because it is usually challenging to qualify for one and because of the adverse effects on one’s credit. Moreover, in most cases, the cost of the bond would be the same as paying off the taxes.

Once you have met one of the above requirements, the IRS should release your tax lien within 30 days. However, in many cases, the IRS doesn’t automatically release the lien. If that happens, contact the Centralized Lien Unit at (800) 913-6050. 

Partial Release of a Tax Lien

In many cases, the IRS will file a Notice of Federal Tax Lien with more than one taxpayer’s name on it. In such situations, if one taxpayer on the NTFL satisfies part or all of their liability while the other does not, the IRS may issue a Certificate of Release with the word “partial” annotated on it. Generally, you can accomplish a partial release with many of the same reasons as above.

How to Get a Tax Lien Withdrawn After Release

As indicated above, a lien release is when the IRS releases your legal obligation to pay the tax liability, but it does not necessarily withdraw the lien from the public record. When the IRS releases a tax lien, it clears the statutory tax lien for your taxes as well as the public NTFL. The IRS does this by filing a Certificate of Release of Federal Tax Lien. However, other tools used by lenders will have references to your tax lien for up to seven years unless the IRS withdraws it. According to the IRS, after the lien is released, you can get it withdrawn by:

• Being in compliance with filing the last three years of personal and, if applicable, business tax returns.
• Being current with estimated quarterly tax payments and tax deposits, if required.

However, in some cases, you can get a lien withdrawn before it's released. If that happens, you will still owe the tax, but the IRS will remove the public record of the tax lien.

How to Get a Federal Tax Lien Withdrawn Before It's Released

To get the IRS to withdraw a tax lien that hasn't been released, you can file Form 12277 (Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien). If the IRS approves your request, the agency will file a document called the Withdrawal of Filed Notice of Federal Tax Lien. It is also known as Form 10916(c), which the IRS utilizes to withdraw an active NTFL. 

Here are the main ways to get the IRS to withdraw a tax lien (other than paying in full and meeting the terms above):

Set Up a Direct Debit Installment Agreement (DDIA)

If you set up a DDIA, the IRS will withdraw the tax lien if you meet these conditions:

• You are an individual, a business with income tax liabilities only, or you are out of business (for which any type of tax qualifies).
• You owe less than $25,000.
• You agree to a direct debit installment agreement with a 60-month term or less. What this means is that the payment is directly taken each month from your bank account. If the IRS can only legally collect for say 30 months, then you must pay off the balance in 30 months or less.
• You have made three (3) direct electronic monthly payments.
• You are in filing and deposit compliance.

Convert a Regular Installment Agreement to a DDIA

If you have an installment agreement already with the IRS, and you are under the $25,000 threshold, you can convert it to a DDIA. You will now qualify to have the lien withdrawn as long as you make three satisfactory payments and you're current with all filing and payment requirements for yourself and/or your business if applicable.

Agustin Arbulu, a Michigan Tax Attorney, highlights a common misconception: 'Clients who have a tax lien filed believe that simply getting the assessed balance below $50,000 will suffice to secure the withdrawal of the tax lien. WRONG! It is critically important to get the balance owed to the IRS below $50,000 before a federal tax lien is filed and immediately enter into a DDIA.'"

Prove That the IRS Didn’t Follow Required Procedures

You can also request a lien withdrawal if the IRS didn’t follow required procedures or filed the tax lien prematurely. Here are some examples:

• An IRS employee knows you have a carryback, overpayment, or adjustment that will satisfy the tax lien and files the tax lien anyway.
• You filed for bankruptcy, and the IRS filed an NTFL while an automatic stay was in place.
• You were in a Combat Zone, away from active military outside the U.S. on a contingency mission, or hospitalized while serving in a Combat Zone
• The IRS filed an NTFL for an Affordable Care Act shared responsibility payment (penalty for not carrying health insurance).
• The IRS filed a duplicate NTFL

Establish That Withdrawing the Tax Lien Will Help Facilitate IRS Collection

If withdrawing the tax lien will facilitate the collection of tax, you can request a withdrawal using Form 12277. For example, say you have no assets, you don’t think you will acquire any assets in the future, and you have no other secured creditors. In this situation, you may agree to make more significant payments to the IRS through payroll deduction than they otherwise would receive through wage garnishment. Based on that, you may be able to convince the IRS that withdrawing the NTFL will facilitate IRS collection.

Prove That Withdrawing the Tax Lien Is In the Government’s Interest

If you, or the Taxpayer Advocate Service acting on your behalf, believe withdrawing the tax lien benefits the taxpayer and the U.S government, the IRS may remove it. For example, in many states, professionals can lose their license or job if they have a tax lien. In such cases, the IRS may approve a withdrawal request if it helps the taxpayer’s credit profile and improves the chance of continuation of payments to the IRS. 

Alternatives to a Lien Release or Withdrawal

If you can't pay in full and don't qualify for a withdrawal under other conditions, you may need to consider the following options:

• Appealing an IRS Tax Lien - After the IRS sends you a Notice of Federal Tax Lien with your right to a collection due process hearing, you have 30 days to request a CDP hearing. There, you can explain why the lien should not be filed against you and talk about payment options. However, this is generally only an option right after the notice of tax lien has been filed.
• Subordinating the tax lien -- When the IRS allows a new creditor to move ahead of the IRS in priority. This can help get financing in certain situations and will be allowed by the IRS if it is in their best interest. For example, this can help you or your business refinance a mortgage so that you can pay off the tax debt or make larger monthly payments.
• Discharge the lien -- When the IRS removes the lien from a specific piece of property. For example, so that you can sell the property to pay off your tax debt.

When In Doubt, Work with a Licensed Tax Professional

In any event, we highly recommend you work with a licensed tax professional to ensure you navigate the IRS collection process, avoid levies, and obtain the most beneficial resolution for you or your business. At TaxCure, our goal is to simplify the process for taxpayers to find tax professionals. We have a unique ranking algorithm that takes into account tax professional experience to ensure you see the pros with experience that match your unique problem.

You can view the list of top-rated professionals that help with tax liens. Note that this list is for IRS tax liens; if you have a specific state agency that has filed a tax lien against you, please be sure to select that agency in the filter to see the professionals that have experience helping taxpayers deal with that particular agency. You can also use the form below to start your search today.