How to Discharge a Federal Tax Lien

Nobody likes paying taxes, but if you don't, the government may place a lien on your property.

Nobody likes paying taxes, but if you don't, the government may place a lien on your property.

Having a tax lien on your property is no fun. If you currently have a federal tax lien on your property, it means that you haven't paid all your taxes. This can be stressful and can keep you from doing things like selling your home or taking out a car loan. You want to get your taxes back on track and the best way to do that is by discharging your federal tax lien.

Contact the IRS to find out the total amount of your tax lien. You should have received multiple notices in the mail regarding your tax debt. However, you may have lost those letters and you'll want to make sure you know the most recent amount owed. It's possible that your tax debt is growing because of penalties and fees.

Create a personal budget. While building your budget, consider how much of your tax debt you would be able to pay off each month. The best way to discharge a tax lien is by simply paying it off.

Submit payment to the IRS. You may want to do this in one lump sum or in multiple payments. Contact the IRS to confirm the address where you will be sending your payments. After you have completely paid off your tax debt, the IRS will discharge your lien in 30 days.

Evaluate your progress. If you are having difficulty paying off your tax debt, consider your alternatives. You can sell some of your property to generate cash to use to pay off your taxes. However, before you can sell your property, you must request permission from the federal government because it holds a lien on all of your property.

Complete IRS From 6325(c) to request a Certificate of Discharge from the IRS. This certificate will allow you to sell specific property in order to pay your taxes. This certificate does not discharge your tax debt or your entire tax lien, it just frees up some of your property. This form is typically used when people want to sell real estate, but have a tax lien. File Form 6325(c) at least 45 days before your scheduled transaction. A buyer may not go through with the sale if you cannot present the completed certificate from the IRS.

Use the money generated from your property sale to pay off your tax debt. The IRS should discharge the lien on your remaining property within 30 days of receiving full payment.

Tip

  • Subordination and withdrawal are two alternatives to discharge. Subordination allows other creditors to take priority over the IRS. This is helpful if you're trying to get a bank loan. Withdrawal removes the public notice from your property to reassure creditors that the IRS is not competing with them. This is also helpful if you're looking for a loan. Neither subordination nor withdrawal discharge your lien or your tax debt.

Warning

  • If you feel that you have been wrongly subjected to a tax lien, you should seek advice from a qualified tax attorney.
 

About the Author

Erika Waters is a business lawyer licensed to practice in California. She has experience working with nonprofits including Teach for America, as well as entrepreneurs and startups. Waters has contributed to several blogs, including the Business & Media Institute and other online publications and has worked as an editor for an academic publication.

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