The most effective IRS tool for getting paid is the Federal Tax Lien Notice. Should you sell your real estate, they are virtually guaranteed to get your share of the proceeds to cover your tax debt. Most payment plans on the other hand end up in default. As a result, they will not remove the lien notice simply because you start making monthly payments.
There are some options open to you when it comes to Federal Tax Lien Notices:
- They will usually issue a Subordination of Federal Tax Lien to allow a bank refinancing of a mortgage provided they get a significant chunk of any cash coming out of the deal.
- They will also remove a particular property from their lien provided they get some cash. This is called a Certificate of Discharge from a Federal Tax Lien.
- You can get a Lien Withdrawal if you are on a Direct Debit Installment Agreement and your debt balance is $25,000 or less. The catch on this one is that the agreement must lead to full payment in less than 60 months or before the Statute of Limitations runs.
Of course, the option the IRS likes the best is for the taxpayer to just pay off the debt balance. Should that happy day happen, the Lien Withdrawal will be automatically issued within 30 days.
Lien Notices are usually not very disruptive to your life like a levy of your wages or bank account. They do affect your credit score and will result in you getting umpteen letters from people offering to get you out of your problem for “pennies on the dollar.” However, most closing agents have experience in dealing with these when it comes to selling real estate making them a minor complexity in the deal.