A tax lien or levy is not a spontaneous incident; it is a result of a series of actions that include missed payment of taxes, ignoring notices, and the passage of time. And once a lien is levied, it can restrict how freely you can use and dispose of your property. Many taxpayers become aware of the depth of the matter only when it starts to impact their credit rating, business, or even daily finances.

Learning how to remove an IRS tax lien or release a levy gives you a genuine opportunity to tackle the problem before it narrows down your options even further. Every decision is important in this case, and the correct step taken at the right moment can have a great impact. Continue reading to discover the reasons why taking control early is not only an intelligent move but also a necessity.

What Is a Federal Tax Lien?

A federal tax lien is the government’s legal claim on your property when you owe taxes and haven’t paid after being officially notified by the Internal Revenue Service (IRS). So, once the IRS reviews your account, confirms the amount due, and sends you a notice asking for payment, the lien can come into effect if that balance remains unpaid.

Basically, it’s the government’s way of making sure its claim is protected. The lien gives the IRS the right to your assets, things like your house, car, or business property, until your tax debt is cleared. It doesn’t mean they take what you own, but it does mean the government has a legal hold on it until everything is paid off.

How Does the IRS File a Lien?

When taxes remain unpaid, the IRS doesn’t just file a lien immediately. There’s a set IRS lien removal process that unfolds before anything becomes official. It starts quietly with a few notices, and each step gives you a chance to respond before the lien is recorded. Steps in the process:

1. The IRS assesses your tax liability. In other words, they determine how much you owe after reviewing your return or an audit. 
2. The IRS sends you a Notice and Demand for Payment. This is the formal notice telling you the amount owed and requesting payment. 
3. If you do not respond or pay, the federal tax lien arises by law from the date of assessment.
4. To protect its interest and inform other creditors, the IRS may file a Notice of Federal Tax Lien (NFTL) with the public recording office where you live or have property.
5. Once the notice is filed, the lien is part of the public record, and other parties (lenders, buyers, creditors) can see that the IRS has a legal claim on your property.
6. When the tax debt is paid in full (including penalties and interest), the IRS must release the lien, clearing the claim from your record.

Note: If you haven’t filed a return at all, that doesn’t stop the IRS from taking action. What they often do is prepare a return for you using the income data they already have. This is called a Substitute for Return (SFR). Once they file it, they assess the tax as if you had filed yourself. And after that, everything moves forward just like any other unpaid balance. So yes, even a failure to file can lead to a lien or levy once the IRS has created and assessed the return on its own.

How Does a Federal Tax Lien Affect You Financially?

A federal tax lien might be just a notice in writing, but once it is imposed, it can secretly affect many financial choices. It does not prevent you from living your life, but it can make things like borrowing or selling properties a little bit more complicated than they were before.

• It can lower your borrowing power since lenders see the government’s claim as a risk, which can make new loans, mortgages, or refinancing harder to get.
• It can delay property sales or refinancing because the IRS must be paid first before you can transfer or access the value of your assets.
• It can limit access to credit for business owners since a lien attaches to company assets and future income, making lenders and investors hesitant to work with you.
• It can stay attached to your property until the full balance is paid or the collection period ends, even if you file for bankruptcy or close a business.
• It becomes part of the public record, so anyone checking your background, like lenders or business partners, can see the lien until it’s released.
• It can reduce how much home or business equity you can use because the IRS’s claim comes before other creditors, limiting new financing options.
• It can lead to stronger IRS actions like levies or wage garnishments if ignored for too long, making early resolution the safest way forward.

How to Remove IRS Tax Liens Legally?

The process of removing a federal tax lien consists of several clear legal tax debt resolution steps that can enable you to pay the balance and regain your financial position. The methods mentioned below are compliant with IRS rules and can be utilized based on the amount owed and the stage of the case you are in.

Pay the Tax Debt in Full

The most direct way to remove a federal tax lien is by paying the full amount you owe, including any interest and penalties. Once the payment clears, the IRS must release the lien within 30 days. That release means the government’s claim is officially lifted from your property. So, if you’re in a position to pay in full, even through a one-time lump sum or by selling an asset, this is the simplest and fastest way to close the lien. It restores your record, stops any future filings, and prevents the lien from showing up in background or credit checks.

Apply for Lien Withdrawal (IRS Form 12277)

If you’ve already paid your balance, or you’ve entered into a payment plan, you can apply for a lien withdrawal using Form 12277. Withdrawal means the IRS removes the lien notice from the public record entirely, as if it were never filed. If you’re not sure how to go about it, reviewing the IRS Form 12277 withdrawal instructions can help you fill it out correctly and avoid delays. This step is especially useful if you want to clean up your financial record, particularly when you’re planning to apply for loans or credit. The IRS may also approve a withdrawal if you’re under a Direct Debit Installment Agreement and have a good payment history.

Once approved, you’ll receive a confirmation letter, and the IRS will notify local offices that the lien has been withdrawn.

Discharge or Subordination of Property

Sometimes, you may not be able to pay the full debt right away but still need to sell or refinance your property. In that case, you can request a Certificate of Discharge or Subordination.

• A discharge removes the lien from a specific property, allowing it to be sold or transferred. The IRS typically does this when the sale proceeds go directly toward paying the tax debt.
• Subordination doesn’t remove the lien but allows another creditor (like a bank) to move ahead of the IRS’s claim. This can make refinancing or getting a mortgage possible even while the lien is active.

Both requests must be made formally through the IRS, and they require supporting documents showing how the transaction benefits repayment.

Qualify Under the IRS Fresh Start Program

The IRS Fresh Start Program can make lien removal more achievable for taxpayers who can’t pay everything at once. It allows certain individuals to set up affordable installment agreements or settle their debts through an Offer in Compromise. Under this program, taxpayers who owe $25,000 or less and are on a Direct Debit Installment Agreement may qualify to have their lien withdrawn after a few months of on-time payments. It’s not automatic; you still need to request it, but it can give you a second chance to recover without long-term financial damage.

Compare Lien Release vs. Withdrawal vs. Subordination

These terms often sound similar, but they mean different things legally. Here’s a simple comparison to help you see how each one works:

Understanding these differences helps you choose the most practical route. Each option depends on your financial situation, payment history, and how urgently you need to clear your record.

Release Federal Tax Levy Procedures

When unpaid taxes remain after repeated notices, the IRS can move from placing a claim on your property to actually taking it. That action is called a levy, and understanding how it works helps you respond quickly and prevent lasting financial damage.

What Is a Federal Tax Levy?

A federal tax levy gives the IRS the authority to take your property or money to settle an unpaid tax debt. It can apply to your wages, bank accounts, Social Security benefits, or even property you own. In most cases, a levy is the final step after several notices and opportunities to resolve the debt voluntarily.

How a Levy Differs from a Lien?

A lien represents the government’s demand for payment secured by your property. On the contrary, a levy is the measure taken by the IRS to recover that debt. To put it simply, a lien is an alert, whereas a levy is the prompt action of collection.

Hence, if the IRS puts a lien, they are securing their claim for future collection. But, when they release a levy, they are necessarily enforcing that claim to the extent of taking funds or assets to satisfy the debt.

Steps to Release a Federal Tax Levy

If the IRS has already levied your account or wages, the situation can still be resolved. The IRS must release the levy when:

• The tax debt is paid in full: Once your balance, penalties, and interest are cleared, the IRS removes the levy and notifies your employer or bank to stop withholding funds.
• An installment agreement is approved: When you set up and maintain an IRS payment plan, the agency usually releases the federal tax levy so you can keep earning income to make payments.
• The levy is causing financial hardship: If the levy prevents you from paying basic living expenses like rent, food, or medical costs, the IRS can release it temporarily or fully after reviewing proof of hardship.
• The levy was issued in error: Sometimes a levy happens after you’ve already paid or filed an appeal. If you can show evidence, the IRS must remove it immediately.
• The collection period expires: Generally, the IRS has ten years to collect a tax debt. When that period ends, levies and liens tied to that balance are automatically lifted.

Each of these steps requires direct contact with the IRS, and you may need to provide documents or proof of income. Acting early helps stop the levy faster and reduces the time your accounts remain frozen.

When Can a Levy Be Released Due to Hardship?

The IRS defines “economic hardship” as a situation where you’re unable to cover basic living costs, and in those cases, you may qualify to release the IRS levy due to hardship. You can request an immediate release by showing your financial records, things like rent, utilities, food, and healthcare costs. Once approved, the IRS lifts the levy and may place your account in Currently Not Collectible status until your finances improve. The tax debt still exists, but collection pauses to prevent further hardship.

Taxpayer Rights During IRS Lien and Levy Actions

Every taxpayer has certain rights before and during the IRS collection process, and knowing them can make a real difference. These taxpayer rights for tax lien and levy are there to make sure you stay informed, get enough time to respond, and are treated fairly, whether the IRS is filing a lien, enforcing a levy, or you’re trying to remove an IRS tax lien or release a levy with the right steps in place.

Right to Advance Notice and Explanation

Before taking any collection action, the IRS has to tell you what’s coming next. The law requires that you receive clear, written notice before a lien is filed or a levy begins, giving you a fair chance to understand and respond in time.

• For a federal tax lien: The IRS first assesses your tax and sends you a Notice and Demand for Payment. If you don’t pay or contact them, the IRS can file an NFTL. Within five business days of that filing, you’ll get a copy of the notice, giving you a chance to ask questions or appeal if something doesn’t look right.
• For a levy: Before the IRS takes or freezes anything you own, it must send a Final Notice of Intent to Levy and a Notice of Your Right to a Hearing at least 30 days in advance. These notices, often called Letter 1058, LT11, or CP90, give you the chance to request a Collection Due Process (CDP) hearing during that 30-day period to stop the levy before it starts.

Right to Appeal and Request a Hearing

If you believe the IRS acted too soon or made an error, you have the right to appeal and ask for your case to be reviewed. This right applies to both liens and levies, though the timing and process can vary a little between the two.

• If the issue involves a lien: You can file an appeal through the Collection Appeals Program (CAP) or a CDP hearing by submitting Form 12153. This lets you challenge things like a lien filed by mistake, one filed too early, or a denial of withdrawal that doesn’t seem justified.
• If the issue involves a levy: You can also request a hearing using Form 12153 before or after the levy begins. Once the appeal is filed, the IRS has to pause all active collection while your case is reviewed. If the decision goes in your favor, the levy must be released and your account corrected.

Legal Remedies If IRS Violates Your Rights

Sometimes, things don’t go as they should. In those situations, you may be able to use one of the federal tax collection remedies to correct the issue and protect your rights.

• For liens: You can request a lien withdrawal under Internal Revenue Code (IRC) §6326 if it was filed in error or if your appeal rights weren’t given properly.
• For levies: You can file a wrongful levy claim under IRC §7426 to recover any property or funds taken without proper authority.
• For serious hardship or delays: You can reach out to the Taxpayer Advocate Service (TAS) for direct help if you’re facing financial strain or the IRS isn’t responding to your situation.

Deadlines and Remedies

When it comes to IRS collections, both liens and levies move within specific timelines and legal limits. It’s important to know how these work because every date and notice matters. Understanding when the IRS must act, when their claim finally expires, and how you can remove an IRS tax lien or release a levy in time can save you from bigger trouble later on.

For Federal Tax Liens

The IRS must release a lien within 30 days after you’ve paid your full balance, including any interest or penalties. If that doesn’t happen, you can ask for a Certificate of Release or submit Form 12277 for withdrawal. A lien generally expires 10 years from the date of assessment, once the collection period runs out. When that time passes, the IRS can’t enforce it, and you can request a correction if it still appears on record.

For Federal Tax Levies

Before any levy begins, the IRS must send a Final Notice of Intent to Levy and give you 30 days to respond. If your bank account is levied, there’s a 21-day hold before the money is sent to the IRS, giving you a short window to show hardship or reach an agreement. Once the debt is paid or an arrangement is approved, the IRS must release the levy right away. Staying aware of these deadlines and acting early with the IRS is often the simplest way to prevent new liens or levies from ever appearing again.

Take Back Control with the Right Legal Steps

A federal tax lien or levy isn’t just another notice you can push aside. Once it’s in motion, things can start stacking up fast: letters, forms, deadlines, and rules that seem to keep changing. Trying to figure all this out on your own can easily lead to small mistakes that turn into big delays or even rejected requests. And when it’s your income or property on the line, that’s not something you want to risk. This is where having the right help really counts. Anthony N. Verni, both a Tax Attorney and Certified Public Accountant, has spent 20+ years helping people like you remove an IRS tax lien or release a levy with the right legal approach. With his deep understanding of IRS procedures and financial law, he helps you fix what’s gone wrong and move toward lasting relief, not just a quick stopgap.

If you’re facing a lien or levy, don’t wait for it to get worse. Contact Verni Tax Law for a private consultation and take a clear, confident step forward.

FAQs