When a taxpayer cannot pay the taxes owed to the federal government, the government can file a federal tax lien on the taxpayer’s property to secure the money owed. A Certificate of Release of Federal Tax Lien is a document issued by the Internal Revenue Service (IRS) and certifies that the unpaid taxes have been paid in full and the lien is no longer in effect. This blog will discuss a Certificate of Release of Tax Lien, how it works, and the implications for taxpayers.
What is a Certificate of Release of Tax Lien?
A Certificate of Release of Federal Tax Lien is a document issued by the Internal Revenue Service (IRS) that certifies that the unpaid taxes have been paid in full and the lien is no longer in effect. A federal tax lien is a legal claim against a taxpayer’s property. The IRS uses it as a way to secure the money owed. The lien is filed with the local county or state recording office. Once the lien is filed, it becomes a public record and is visible on the taxpayer’s credit report.
How Can I Obtain a Certificate of Release of Tax Lien?
The process of obtaining a Certificate of Release of Tax Lien varies depending on the amount of taxes owed and the payment plan established with the IRS. Generally, however, the process involves paying the taxes that are owed in full, and then the IRS will issue form 668(Z). Suppose the taxpayer cannot pay the full amount of taxes due. The IRS may enter into an installment agreement with the taxpayer to obtain the certificate.
Another way to obtain a Certificate of Release of Tax Lien is by appealing the lien. If the taxpayer feels that the lien was filed in error or that the amount of taxes owed is incorrect, they can appeal the lien with the IRS. The taxpayer can obtain the certificate without additional payments if the appeal succeeds.
What Benefits Does a Certificate of Release of Tax Lien Provide?
The primary benefit of a Certificate of Release of Tax Lien is that it releases the taxpayer from the lien and clears their credit report. This means that the lien will no longer appear on the taxpayer’s credit report, and they can begin to rebuild their credit. Additionally, the certificate allows the taxpayer to access more lines of credit and loans, as lenders are now more likely to offer loans to those with a clear credit report.
Another benefit of a Certificate of Release of Tax Lien is allowing the taxpayer to move on from the debt. Once the certificate is issued, the taxpayer can no longer be held liable for the debt and can move on with their life. The certificate also serves as a reminder that the taxpayer has taken responsibility for the debt and is now free from it.
What Are the Risks of Not Obtaining a Certificate of Release of Tax Lien?
Taxpayers may face several risks if they do not obtain a Certificate of Release of Tax Lien. The most significant risk is that the lien will continue appearing on the taxpayer’s credit report, making it difficult to access loans and lines of credit. Additionally, the lien may prevent the taxpayer from selling or transferring certain assets, such as real estate, as the lien must be cleared before the sale or transfer can be completed.
Furthermore, suppose the taxpayer does not obtain a Certificate of Release of Tax Lien. They may still be liable for the taxes owed. This means that the government can still act against the taxpayer to collect the debt. This could include garnishing the taxpayer’s wages or seizing their assets.
Implications for Taxpayers
The implications of a Certificate of Release of Tax Lien for taxpayers are significant. Taxpayers need a copy of this document to prove that the lien has been satisfied. Without the certificate, the lien will remain on the taxpayer’s credit report and can harm their credit score.
Removing a Federal Tax Lien from Your Credit Report
Once a taxpayer receives a Certificate of Release of Tax Lien, they can remove the lien from their credit report. Removing a federal tax lien from a credit report is relatively simple. The taxpayer must contact the three major credit bureaus and provide a copy of the Certificate of Release of Tax Lien. The credit bureaus will then remove the lien from the taxpayer’s credit report.