How Can I Remove a Tax Lien?

Once a tax debt has progressed to the point that the agency has filed a tax lien on the public record, the tax problem takes on another, more serious, layer of complexity. A tax lien generally attaches to ALL of the tax debtor’s assets, including some that may have been exempt under state law.

For example, a home that is owned by a husband and wife, and which is titled as a joint tenancy by the entirety, generally is protected from creditors who have a debt with only one of the spouses. Let’s say that a husband and wife own a home with $20,000 in equity, and that the husband owes a $10,000 income tax debt to the IRS. Furthermore, let’s say that this tax debt was dischargeable in bankruptcy because it related to a tax year more than three years past, he filed a tax return for that year more than two years ago, and the IRS had assessed the tax debt on its books.

Had the husband filed bankruptcy before the tax lien was issued by IRS, he could have discharged the tax debt and kept the equity in his home. However, once the tax lien is issued, under the Supreme Court’s 2002 decision in United States v. Craft, the federal tax lien will attach to the equity in the home and be fully secured. Unless he can contest the validity of the tax itself or the amount due, he will now have to pay it in full, plus any accrued interest and penalties, at the time he sells or refinances the property.

Tax liens can be dealt with, using a variety of tactics, but generally it’s better to seek help early before they are issued and resolving the problem becomes more challenging.