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The IRS lien monkey: How to force it off your back

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in Small Business Tax

Do you owe the feds money? In a worst-case scenario, the IRS could slap a lien on your assets until you’re able to pay the tab. It doesn’t matter if other creditors already have dibs on the assets.

Strategy: Don’t go down without a fight. If you have grounds, you can appeal the lien filing. At the very least, you can subordinate the IRS lien to other liens.

Three steps in the process

When you’re in arrears to Uncle Sam, the IRS may establish a legal claim to your assets, including your house or car, as security or payment for the debt. But the IRS can file a lien only after the following have occurred:

1. The IRS has assessed a tax liability.

2. The IRS has notified you of the deficiency and formally demanded payment.

3. You neglected to pay the bill, or chose not to pay it, within 10 days of the notification.

By filing notice of the lien, the IRS effectively warns other creditors about its rights against your assets. Courts use this notice to prioritize claims in certain situations (e.g., bankruptcy proceedings or real estate sales). The lien remains a matter of public record until the debt is paid in full.

Bad news: Once the IRS has filed a lien, it can severely impair your credit rating. You probably won’t be able to buy a house or a car, sign a lease or obtain credit cards. So, it’s in your best interests to resolve the matter ASAP.

Good news: Prioritize other claims ahead of the IRS. Follow the procedures spelled out in IRS Publication 784 (How to Prepare Application for Certificate of Subordination of Federal Tax Lien). Don’t let the long title scare you; the pub is only two pages long. Find it at

Have the IRS quit ‘liening’ on you

An IRS lien doesn’t last forever. In fact, the IRS may withdraw its notice of the lien if:

• The notice was filed too soon, or not according to IRS procedures.

• You entered into an installment agreement to pay the debt (unless the agreement provides otherwise).

• Withdrawing the notice of lien will speed up collection of the tax.

• Withdrawing the notice of lien proves to be in the best interests of both you (as determined by the Taxpayer Advocate) and the government.

The IRS will provide you with a copy of the withdrawn notice. You can also request that the agency send copies to institutions that you name.

Tip: You can file suit in federal court against the IRS if it fails to release a lien in error. You must file the suit within two years of your claim.

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