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Posted by Jim McClaflin, EA, NTPI Fellow, CTRC

Understanding Tax Liens and How to Respond

Understanding Tax Liens and How to Respond

Tax liens are a common issue faced by taxpayers in the United States. If you owe back taxes to the Internal Revenue Service (IRS) or state tax authorities, they may place a tax lien on your property. Understanding what a tax lien is and how to respond to it is crucial to safeguard your financial interests. 

What is a Tax Lien? 

A tax lien is a legal claim against your property, both real and personal when you fail to pay your tax debt. The IRS or state tax authorities automatically impose this lien as a way to secure their interest in collecting the owed taxes. Tax liens are public records, which means they are filed with the appropriate government agency and become part of your credit history. Here's a breakdown of key points to understand:

Types of Tax Liens

There are two main types of tax liens:

  • Federal Tax Liens: These are imposed by the IRS for federal tax debts. They can affect all your property, including real estate, personal assets, and financial assets.

  • State Tax Liens: State tax authorities can also place liens on your property for unpaid state taxes. The rules and procedures can vary from state to state, so it's essential to understand the specific regulations in your area.

When is a Tax Lien Imposed?

A tax lien is typically imposed when you:

  • Fail to pay your federal or state taxes on time.

  • Ignore IRS or state tax authorities' requests for payment.

  • Don't respond to tax bills, notices, or other communication.

Implications of a Tax Lien

Understanding the implications of a tax lien is vital as it can impact various aspects of your financial life:

  • Your credit score may suffer, making it challenging to secure loans or credit cards.

  • The lien can affect your ability to sell or refinance your property.

  • It can lead to difficulties in obtaining new credit or financing.

  • Tax liens can remain on your credit report for up to seven years after they are resolved.

Responding to a Tax Lien

If you find yourself facing a tax lien, it's essential to take appropriate actions to address the situation. Here's a step-by-step guide on how to respond to a tax lien:

Verify the Lien Information

Before taking any action, it's crucial to verify the accuracy of the lien information. This involves confirming the following:

  • The amount of the tax debt.

  • The tax years involved.

  • Your personal information on the lien. 

Mistakes can happen, and you want to ensure that the lien is legitimate and accurate.

Pay the Tax Debt

The most straightforward way to remove a tax lien is to pay the tax debt in full. If you can afford to do so, this is the quickest and most effective way to release the lien.

  • Contact the IRS or state tax authority to determine the exact amount owed, including any interest and penalties.

  • Arrange a payment plan or negotiate a settlement if you can't pay the full amount upfront.

Request a Lien Release

If you've paid your tax debt or made arrangements for repayment, you can request a lien release. This will remove the lien from your property. Here's how to go about it:

  • Submit Form 12277, Application for Withdrawal, to the IRS or the appropriate state tax agency.

  • If the IRS approves your request, they will notify credit reporting agencies to remove the lien from your credit report.

Dispute the Lien

If you believe that the tax lien is not justified due to errors or other reasons, you can dispute it. To do this:

  • Contact the IRS or state tax agency to discuss your concerns.

  • Provide evidence to support your claim.

  • If the dispute is resolved in your favor, the lien will be released.

Apply for a Certificate of Subordination

Sometimes, it might be in your best interest to keep the tax lien on your property temporarily, especially if you're trying to refinance or sell the property. In such cases, you can apply for a Certificate of Subordination.

  • A Certificate of Subordination allows other creditors to take a higher priority in the event of foreclosure or sale while the tax lien remains in place.

  • This can make it easier to secure financing or complete a real estate transaction.

Explore Other Options

In some cases, you may not be able to pay the tax debt or reach an agreement with the IRS or state tax authority. In such situations, consider other options such as:

  • Offer in Compromise: This is a settlement option where you negotiate with the IRS to pay a reduced amount.

  • Bankruptcy: While not always recommended, bankruptcy can discharge certain tax debts and may remove the lien.

  • Seek professional help: Consulting with a tax attorney or tax professional can help you navigate the complexities of tax liens and explore all available options.

Preventing Tax Liens: Prevention is always the best approach when dealing with tax issues. Here are some strategies to help you avoid tax liens:

Stay Current with Tax Payments: The most straightforward way to prevent tax liens is to stay current with your tax payments. Always file your tax returns on time and pay any taxes owed by the due date.

Set Up an Installment Agreement: If you can't pay your taxes in full, consider setting up an installment agreement with the IRS or state tax authorities. This allows you to make regular, manageable payments.

Seek Professional Help: A tax professional can help you navigate the complexities of the tax system, ensuring that you comply with tax laws and avoid potential issues.

Keep Records: Maintain detailed records of your tax returns, payments, and communications with the IRS or state tax authorities. This documentation can be invaluable in case of disputes or issues with your tax liabilities.


Understanding tax liens and how to respond to them is essential for protecting your financial interests. Whether you're facing a tax lien or want to prevent one, this comprehensive guide provides the information you need to navigate the complex world of tax debt. By taking the right steps, you can resolve tax lien issues and maintain your financial stability while complying with tax laws in the United States.



Jim McClaflin, EA, NTPI Fellow, CTRC
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