Federal Tax Lien Release & Withdrawal
A Notice of Federal Tax Lien attaches to every asset you own and every asset you acquire while the lien is in force. It does not seize the asset, but it makes selling, refinancing, or borrowing against the asset extremely difficult. Valley Tax Law handles lien release, withdrawal, subordination, and discharge requests for California property owners.
There are five distinct lien remedies and each one solves a different problem. Knowing which one applies to your situation, and what the IRS will require to grant it, is the difference between closing your sale on time and watching the deal collapse.
The Five Lien Remedies
Lien Release: occurs when the tax debt is paid in full, expires under the collection statute, or becomes legally unenforceable. The IRS must release the lien within 30 days. Form 668(Z) is the certificate of release.
Lien Withdrawal: removes the lien from public records as if it had never been filed. Available when the lien was filed prematurely, when withdrawal will facilitate collection, when the taxpayer is in a Direct Debit Installment Agreement under $25,000, or when withdrawal is in the best interest of both the taxpayer and the government.
Lien Subordination: keeps the lien in place but allows another creditor to take priority. Most commonly used to refinance property at a lower rate where the new loan benefits the IRS by improving cash flow.
Lien Discharge: removes the lien from a specific piece of property while keeping it on other assets. Used to sell property where the sale will result in proceeds being paid to the IRS or where the property has no equity beyond senior encumbrances.
Certificate of Non-Attachment: confirms that the lien does not attach to a specific person or asset. Useful when title companies or lenders are confused about who is the liable taxpayer.
Selling or Refinancing With a Tax Lien
Property cannot transfer with a tax lien attached unless the lien is released, withdrawn, discharged, or paid through escrow. Title companies will demand a payoff or a certificate before closing.
When equity is sufficient to pay the lien from escrow, the closing proceeds satisfy the IRS at recording and a release follows. When equity is insufficient, a discharge under IRC Section 6325(b) is the proper request, typically processed in 45 days using Form 14135.
Withdrawal Under the Fresh Start Initiative
Withdrawal is the most powerful remedy because it removes the lien from public records. Under Fresh Start, the IRS will withdraw a Notice of Federal Tax Lien when the balance is under $25,000, the taxpayer is in a Direct Debit Installment Agreement, three consecutive payments have been made, and the taxpayer is in full filing compliance.
Form 12277 requests withdrawal. Documentation of the three payments and current filing status accompanies the request. We file these regularly for clients with credit and lending implications.
Serving California Communities
Valley Tax Law represents clients throughout the Central Valley and Central Coast. Schedule a consultation at any of our offices, or by phone.
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