IRS Lien Release Vs. Lien Withdrawal 

Definitions, Differences, and How to Qualify

lien releases

If you’re reading this, you probably already understand what a problem an IRS tax lien can be. You also likely know that liens are restrictive, and to protect your assets, you want to get rid of them as soon as possible. But how do you go about doing so? The two most promising options are lien withdrawals and releases.

Both withdrawals and releases can be effective, but depending on your financial needs and goals, one could be more beneficial than the other. To help you identify the best option, this guide explains both and outlines when and how to apply, but first, let’s review liens in general. 

What Is an IRS Lien? 

A federal tax lien is the government’s legal interest in a taxpayer’s property after the IRS assesses a tax against the taxpayer and the taxpayer refuses to pay the tax. An IRS lien effectively acts as the IRS’ way of saying, “I’ve got dibs!” on the taxpayer’s property as a way of preventing the taxpayer from selling or transferring that property until they first pay the IRS any unpaid taxes owed.

There are two key moments when it comes to IRS liens. The first is when the lien attaches, which is the date the IRS assesses the tax. However, just because the IRS assesses a tax against you doesn’t mean there’s automatically a lien placed on your property.

What often happens is that the IRS assesses a tax against you and then sends a letter informing you of the tax debt. Ideally, you’d immediately pay the tax owed in full, or at least make an arrangement with the IRS so you can pay off the tax balance over time, such as with a payment plan. If you were to ignore that letter and any other reminder letters that follow, the IRS now knows you’re refusing to pay and the IRS steps up its tax collection efforts.

This often means the IRS files a Notice of Federal Tax Lien (NFTL). The filing of the NFTL is the second key moment in the life of a tax lien. The IRS files the NFTL in the county where you live and this filing offers public notice to anyone who might have an interest in your finances, such as a current or future creditor.

When the IRS files an NFTL against you, it’s difficult, if not impossible, for you to obtain additional credit, refinance existing credit (like a mortgage), or sell your assets, such as a car or home. The reason is that any potential creditor, like a bank, will likely refuse to let you borrow money from them. This is because they know that you owe another debt to the IRS.

There’s also the fact that any property that you could potentially offer as collateral to secure a loan is already “taken” by the IRS. As for potential buyers, they won’t buy anything from you because they don’t want to risk paying you for property they have to turn over to the IRS without getting their money back.

The IRS tax lien doesn’t typically attach to your property when the IRS files the NFTL because there’s often a lengthy delay from the date of assessment to the date of NFTL filing. Instead, the date of the lien attachment will retroactively be applied back to the date of the original tax assessment.

Liens are public records, and once filed, there are two ways to get rid of them: lien releases and lien withdrawals.

What Is a Lien Release? 

A lien release is a removal of the lien because the taxpayer has paid off the underlying tax obligation, the IRS accepts a bond for the tax liability, or the tax obligation is no longer enforceable. 

A tax debt may no longer be enforceable if the statute of limitations deadline has passed or a bankruptcy proceeding discharged the tax debt. The IRS must release the lien within 30 days of the taxpayer notifying the IRS of the need for the lien release.

A lien release is not the same thing as a lien discharge. A lien release means the lien goes away. A lien discharge means the lien gets removed from a particular piece of property even though the tax liability still exists and the lien on other property remains.

What Is a Lien Withdrawal? 

A tax lien withdrawal is the removal of the NFTL from public record whether or not the underlying tax debt remains. The removal of the NFTL from public record means anyone searching your credit history in public records won’t find the tax lien even if you still owe the IRS money.

In the past, a lien withdrawal was more desirable, as lien releases used to show up on credit reports. Now that they don’t, the value of a lien withdrawal has dropped. Lien withdrawals are still useful given how many creditors will check the public record in addition to pulling a credit report. 

Differences Between a Lien Release and Withdrawal 

The biggest differences between releases and withdrawals are that:

  • Lien releases mean there’s no more tax debt, but there’s still evidence of the tax debt in the public record.
  • Lien withdrawals remove the lien from public records as if it never existed, but the underlying tax debt could still remain.
  • Lien releases improve a taxpayer’s finances because there’s one less debt owed while a lien withdrawal improves a taxpayer’s credit because the lien is no longer in their credit history (even though the taxpayer still owes the IRS money).

Which one is better depends on your financial goals and needs. If your primary concern is that you want the IRS to stop trying to collect unpaid taxes from you, then you’d choose a release over a withdrawal. In contrast, if improving your credit history is most important, such as being in the market for a new loan or wanting to refinance a current one, then you might prefer a withdrawal of the lien. 

To best understand the effects of either on your unique financial situation, it’s advisable to consult with a tax attorney or professional who has experience dealing with tax liens. 

How to Get a Lien Release 

To release a tax lien, you’ll need to inform the IRS that one of the three reasons for a line release is present. You can do this by calling the IRS Centralized Lien Office at 1-800-913-6050. They’ll tell you what further information or documentation you need to provide so the IRS can release the lien.

When the lien is released, the IRS files a Certificate of Release of Federal Tax Lien in the same county where it filed the NFTL. You should receive a copy of this certificate at your last known mailing address. The IRS is legally required to release the lien within 30 days of the tax debt being satisfied or no longer being enforceable. If you don’t get a copy of this certificate within 30 days of release, you can contact the IRS Centralized Lien Office to check on its status.

If you’ve asked the IRS to release the lien, but they haven’t done so within 30 days, you can submit a written request for release to the Collection Advisory Group servicing the area where you live. You can find the correct Collection Advisory Group address by checking IRS Publication 4235, Collection Advisory Group Addresses. The written request should contain the following information:

  • Your name and address.
  • The date of your lien release request.
  • A telephone number and the best time to call you.
  • An explanation of why the IRS should release the lien. If applicable, this may include a copy of the proof of payment used to pay off your tax balance.
  • A copy of the NFTL you want to be released.

If you need the certificate of release before the 30-day deadline, you can speed up this process by visiting your local IRS office and providing the necessary documentation in person to release the lien. 

How to Get a Lien Withdrawal 

To request a lien withdrawal from the IRS, you’ll need to complete IRS Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. The IRS will usually withdraw the lien in any of the following scenarios:

  • You’ve already had your lien released and have complied with your current tax obligations (more details in the following section).
  • The IRS made a mistake while filing the NFTL, either by filing too early or not following the proper procedures.
  • The withdrawal will make it easier for you to pay off your tax debt.
  • The withdrawal is in the best interests of you and the U.S. government.
  • You and the IRS have entered into an installment agreement to pay the tax debt subject to the tax lien you’re trying to withdraw.
  • You have entered into a Direct Debit installment agreement.

One of the most common reasons to request a lien withdrawal is that it will facilitate the IRS’ collection of taxes from you. For example, imagine you owe the IRS $25,000 and the IRS filed a Notice of Federal Tax Lien to help collect that debt from you. You could pay the entire tax balance, but only if you could refinance your home to convert some of its equity into cash.

Unfortunately, no bank is willing to refinance your mortgage or offer you a home equity line of credit (HELOC) with an NFTL in place. But if you could get the IRS to withdraw its lien, you know you could get the mortgage refinance or HELOC and pay off your tax debt. In this situation, assuming there are no other relevant issues, the IRS will probably agree to withdraw the lien.

Once the IRS decides on your withdrawal request, you should receive a letter. If the IRS denies your request, you can request an appeals conference with the IRS Independent Office of Appeals. To do this, you’ll need to complete IRS Form 9423, Collection Appeal Request.

Getting Both a Lien Release and Withdrawal 

Instead of deciding between one or the other, you can sometimes have both if you meet the eligibility requirements. The first thing you need to do is get the lien released (or otherwise take care of the underlying tax debt). Assuming you’ve done that, there are three potential ways to withdraw the lien:

  • You show that the IRS made a mistake while filing the NFTL, either by filing too early or not following the proper procedures;
  • You show that for the past three years, you’ve been in compliance with any tax return filing requirements, and you’re current with any applicable estimated tax payments and federal tax deposits; or
  • You demonstrate that the withdrawal is in your best interest, as well as the U.S. government. You can sometimes show this by explaining how the lien remaining in the public record is harming your creditworthiness and that may increase the likelihood of you failing to pay your taxes in the future. 

Need Help With an IRS Tax Lien?

Dealing with the IRS trying to collect unpaid taxes can be difficult enough to deal with on its own, but having to also fight a tax lien can make you feel like giving up. However, there are multiple ways to deal with the tax lien, but they’re not all created equal. 

To decide if a lien withdrawal or release is better, it helps to talk with a tax professional, such as one from Seattle Legal Services, PLLC. We’ll not only advise you on the best option but help you through the withdrawal or release request process. We offer free consultations, which you can schedule online or by calling 425-428-5262.