Quick overview

A Notice of Federal Tax Lien (NFTL) publicly notifies creditors the IRS has a legal claim to a taxpayer’s property because federal taxes are unpaid (IRS guidance: “Understanding a Federal Tax Lien”). The NFTL can make it harder to get loans, sell real estate, or refinance. This article explains the practical steps to petition for withdrawal, request a release, obtain subordination or discharge of a lien, and the timelines and documentation the IRS typically requires.

How the IRS places and removes a lien (plain language)

  • Filing the lien: After the IRS assesses tax and sends a demand for payment, if you don’t pay within the statutory time, the IRS may file an NFTL to protect its interest in your assets (IRS: “Understanding a Federal Tax Lien”).
  • Release after payment: When you pay the debt in full, the IRS generally files a Certificate of Release within 30 days (IRC § 6325). This removes the lien from property records.
  • Withdrawal vs. release: A “release” (or Certificate of Release) occurs after the liability is satisfied; a “withdrawal” (Form 12277) cancels the NFTL filing as if it never occurred, under limited circumstances, and can benefit credit reporting and title searches.

(Author note: In my practice as a CPA/CFP®, clients often prefer withdrawing an NFTL when eligible because it reduces the administrative friction a lien causes with lenders.)

Primary options to deal with a NFTL

  1. Pay the tax in full
  • Effect: The IRS must release the lien (file a Certificate of Release) generally within 30 days after the tax is paid or a bond is accepted (see IRS guidance and IRC § 6325).
  • How to do it: Pay online, by check, or through a trust fund recovery/payment arrangement. Ask the IRS to confirm the release in writing.
  1. Enter an Installment Agreement
  • Effect: The lien remains, but you demonstrate cooperation. Certain installment agreements can make you eligible to request a lien withdrawal (see conditions below). For help setting up payments, see our guide on setting up an installment agreement.
  • Interlink: For details on payment plans and how to calculate realistic monthly payments, see: “Setting Up an IRS Installment Agreement: A Step-by-Step Guide” (https://finhelp.io/glossary/setting-up-an-irs-installment-agreement-a-step-by-step-guide/).
  1. Offer in Compromise (OIC)
  1. Request Withdrawal of the NFTL (Form 12277)
  • When to request: The IRS may withdraw an NFTL if it was filed prematurely or withdrawing will facilitate collection more effectively than leaving the lien public (e.g., to allow a sale or refinance that will pay the tax debt). Often available when you enter a direct debit installment agreement or when full payment has been made.
  • Form: Use Form 12277 (Application for Withdrawal of Filed Form 668(Y) Notice of Federal Tax Lien). See the IRS Form 12277 page for current filing instructions.
  • Timeline: If approved, the IRS should process withdrawal requests within 30–60 days but timing can vary by office. Keep proof of submission and follow up with the IRS local office and county recorder.
  1. Subordination (Form 14135)
  • Purpose: Subordination allows other creditors (like mortgage lenders) to move ahead of the IRS lien without discharging the lien. It can help you refinance or obtain credit.
  • Form: File Form 14135 (Application for Certificate of Subordination). The IRS evaluates whether subordinating will result in better collection prospects or help you obtain financing that will benefit repayment.
  1. Certificate of Discharge (property-specific)
  • Purpose: Partial removal of the lien from specific property (e.g., selling a parcel while lien remains on other assets). This is often used in real estate transactions.
  • Process: Request a Certificate of Discharge from the IRS; rules differ by case and local recording offices.

Practical step-by-step checklist to petition or obtain release

  1. Confirm the lien: Get a copy of the NFTL from your county recorder and request a transcript/record from the IRS to confirm dates and amounts. Document the IRS file number and assessed amounts.
  2. Review eligibility: Decide whether you will pay in full, enter an installment agreement, submit an OIC, or request withdrawal/subordination/discharge. Examine the criteria for Form 12277 (withdrawal) or Form 14135 (subordination).
  3. Gather documentation: Recent IRS notices, proof of payment or a draft settlement, mortgage or purchase contracts (if refinancing or selling), proof of hardship if requesting withdrawal for financial reasons.
  4. Contact the IRS: Call the number on your notice or the Lien Unit for your local IRS office. Request the procedural steps and proper mailing address for forms and documentation.
  5. File the right form: Submit Form 12277 for withdrawal requests, Form 14135 for subordination, or the OIC package (Form 656) if pursuing compromise. Keep certified mail receipts and copies.
  6. Follow up with county recorder: If the IRS approves release or withdrawal, confirm the county recorder removes or updates the public record. If the county record isn’t updated promptly, provide the recorder’s office with the IRS certificate.
  7. Monitor credit reports and titles: After withdrawal or release, check credit reports and title records. A withdrawal is more beneficial to credit files; a release ends the lien but the NFTL filing may still appear as historical data for some records.

Common pitfalls and how to avoid them

  • Waiting too long: Don’t ignore notices. Delays can lead to levies and higher penalties.
  • Filing the wrong form or incomplete package: Use the correct IRS form (12277, 14135, 656 for OIC) and attach supporting evidence. Incomplete submissions delay processing.
  • Assuming withdrawal is automatic: Withdrawal is discretionary and subject to IRS policy.
  • Not following county requirements: Even after the IRS issues a release or withdrawal, county recorders may need documentation to update local records—follow up.

Timelines and expected outcomes

  • Release after full payment: Generally within 30 days of full payment or when an acceptable bond is posted (IRC § 6325).
  • Withdrawal petitions: Often processed within 30–60 days, but timing varies. Ask the IRS lien office for current estimated processing times.
  • Subordination/discharge: These are case-by-case; the IRS will evaluate whether the requested action promotes collection.

Examples from practice

  • Refinance case: I worked with a homeowner whose NFTL blocked a refinance. We applied for subordination (Form 14135) and provided lender documentation showing proceeds would pay the tax debt. The IRS subordinated the lien, the refinance closed, and the tax was paid from escrow.
  • Withdrawal success: A small-business owner negotiated a direct-debit installment agreement that met IRS withdrawal criteria. We filed Form 12277 with the installment agreement documents and the county lien was withdrawn, simplifying the sale of the business.

Documentation checklist (for a withdrawal request)

  • Completed Form 12277, signed and dated.
  • Copy of Form 668(Y) (the NFTL) or county filing information.
  • Proof of entry into an acceptable installment agreement or proof of payment.
  • Lender or buyer contracts if withdrawal is requested to facilitate a sale or refinance.
  • Letter explaining why withdrawal will not impair collection and how it facilitates payment.

How IRS decisions affect credit reports

  • Withdrawal vs release: Withdrawal removes the NFTL filing; this is the better outcome for credit/title searches. A release (after full payment) ends the lien but the original filing may still appear on some older public records or on credit reports for up to seven years. If errors persist, dispute with credit bureaus.

When to hire a professional

Hire a tax attorney, CPA, or enrolled agent when:

  • You face levies or imminent seizures.
  • The lien blocks major transactions (home sale/refinance, business sale).
  • You need complex negotiations (OICs, bankruptcy interplay, or multi-state property issues).
    (Author note: In my experience, bringing a professional early often reduces processing time and avoids procedural errors.)

Frequently Asked Questions (short answers)

  • Can the IRS withdraw a lien if I enter an installment agreement? Yes — under certain conditions the IRS will withdraw the NFTL, commonly when you enter a direct-debit installment agreement and withdrawal won’t jeopardize collection (see Form 12277 guidance).
  • Does paying the tax remove the lien immediately? The IRS files a Certificate of Release generally within 30 days after full payment; county recorders may take extra time to clear local records.
  • Will a withdrawal fix my credit instantly? Withdrawal helps clear public records and title searches but credit reporting updates can still take time; you may need to dispute lingering entries with credit bureaus.

Sources and further reading

Final notes and disclaimer

This article explains common pathways to petition, withdraw, or obtain release of a Federal Tax Lien and reflects IRS procedures current in 2025. It is educational only and not legal or tax advice for any specific situation. For individualized guidance, consult a licensed tax professional or attorney experienced with federal tax collections.