Quick overview

A Notice of Federal Tax Lien (NFTL) is the IRS’s formal public notice that it has a legal claim against a taxpayer’s current and future property for unpaid federal taxes. The lien arises by law after the IRS assesses tax, sends a demand for payment, and the taxpayer fails to pay within the statutory period. The NFTL is recorded at the local or state level so third parties — lenders, title companies, and potential buyers — know the IRS has priority over the asset.

This article explains exactly what an NFTL does and does not do, how it’s recorded, practical steps to respond, common outcomes I’ve seen in practice, and reliable resources to help you act quickly and strategically. It draws on IRS guidance (Internal Revenue Code §6321–6323 and IRS guidance on federal tax liens) and consumer finance sources. See IRS guidance: https://www.irs.gov/businesses/small-businesses-self-employed/federal-tax-liens.

How an NFTL is created and what it means

  • Legal trigger: A lien arises automatically under Internal Revenue Code §6321 when the IRS assesses tax, issues a demand, and you do not pay. The IRS files a Notice of Federal Tax Lien to put third parties on notice and to protect its priority against other creditors.
  • Public filing: The NFTL is recorded with county or state recording offices or with the appropriate filing system for business property. That makes the lien discoverable in title and public-record searches.
  • Priority: Filing establishes the IRS ahead of later creditors for the taxpayer’s assets (subject to certain exceptions and earlier-recorded secured interests).
  • NFTL vs levy: The NFTL is a claim against property; it does not immediately seize assets. A levy is a separate enforcement action the IRS uses to collect by taking property or funds.

Immediate steps to take when you receive or discover an NFTL

  1. Confirm authenticity and get a tax transcript. Scams are common; verify by contacting the IRS and retrieving your account transcript using IRS tools or by calling the number on the notice. Check the IRS page on federal tax liens for official contact guidance (IRS).
  2. Determine the assessed amount and reason. Identify which tax year(s) and types of tax (income, payroll, etc.) the lien covers.
  3. Gather documents. Collect recent tax returns, notices, bank statements, payroll records, and any correspondence with the IRS.
  4. Contact a tax professional if you’re unsure. A CPA, enrolled agent, or tax attorney can review options and negotiate on your behalf. In my practice I’ve often been able to pause enforcement actions while negotiating payments or agreements.

Primary options to resolve or limit the impact of an NFTL

  • Pay in full. Full payment removes the underlying debt. After payment, the IRS will issue a Certificate of Release (or equivalent) to remove the lien from public records once processing completes.
  • Enter an installment agreement. If you set up and stay current on an approved installment agreement, the IRS may file a Certificate of Discharge, release property, or consider withdrawal in appropriate cases. Installment agreements also stop enforcement while you comply.
  • Offer in Compromise (OIC). If you qualify for an OIC and the IRS accepts it, the lien may be released or adjusted when the terms are satisfied. OICs have strict eligibility and documentation requirements (see IRS Offer in Compromise guidance).
  • Withdrawal of the NFTL. The IRS can withdraw a filed NFTL in limited circumstances where withdrawal will facilitate full or partial collection or where the lien was filed in error. Withdrawal removes the public filing but does not remove the underlying tax debt. See the IRS page on withdrawal policy for criteria and procedures (IRS).
  • Subordination and discharge of property. The IRS can subordinate its lien to a new creditor (helpful for refinancing) or discharge a particular property from the lien so a sale can proceed. These are administrative remedies the IRS can grant in specific circumstances.
  • Bankruptcy and other legal remedies. Bankruptcy can alter lien priority or allow discharge of certain tax debts; consult a bankruptcy attorney for case-specific guidance.

How an NFTL affects credit, property sales, and financing

  • Credit reports: Since 2018, major consumer credit reporting agencies generally remove public tax liens from credit reports, but the NFTL remains a public record and will show up on title searches and public-record checks. Lenders and title companies commonly require liens to be resolved before closing on a mortgage or sale.
  • Home sales and refinancing: An NFTL can stop or delay a sale or refinance because title companies require releases or discharges for clear title. Options include paying the tax, arranging escrow at closing, or requesting a discharge of particular property.
  • Business impacts: For businesses, a lien can complicate obtaining new financing, selling assets, or securing vendor credit. For payroll tax liens, the IRS may pursue quicker enforcement actions.

Examples from practice

  • Small business payroll lien: A small employer fell behind on payroll taxes. I reviewed cash flow, negotiated an installment agreement specific to payroll tax priority, and requested the IRS temporarily suspend aggressive collection. With a reasonable payment plan, the owner avoided a levy and ultimately obtained a discharge for a specific property to complete a lease refinancing.
  • Freelancer NFTL: A freelancer who missed quarterly estimates received an NFTL when taxes accrued. We pulled transcripts to confirm the assessment, applied for an installment plan, and kept the IRS updated on income changes. The lien stayed on record but the taxpayer avoided forced collection while paying monthly.

Common mistakes to avoid

  • Ignoring the notice. Silence can lead to enforced collection like levies or levies on bank accounts and wages.
  • Assuming a lien won’t block a sale or refinance. Even if a lien is not visible on credit, title and public-record searches will find it.
  • Failing to verify the amount due. Tax assessments can include penalties and interest; a transcript will show the accurate balance.
  • Falling for scams. The IRS will not demand immediate payment via gift cards or threaten arrest. Confirm legitimacy through IRS.gov.

Practical checklist (first 30 days)

  • Verify notice authenticity and account balance with IRS tools.
  • Order your tax account transcript and any relevant transcripts (record of account, account transcript).
  • Identify if the lien affects a pending sale, refinance, or loan application and notify the lender/title company.
  • Consult a tax professional if amounts are large, if you face payroll tax liens, or if you may qualify for an Offer in Compromise.
  • Explore short-term solutions: installment agreement, temporary hold, or proof of pending payment.

How the IRS may remove or modify a lien

  • Certificate of Release: When the tax is paid or collection statute expires and all conditions are met, the IRS issues a release or certificate removing the lien from public record.
  • Withdrawal: The IRS may withdraw a filing that should not have been made or where withdrawal will aid collection. This is not the same as releasing the debt.
  • Subordination and discharge: These provide case-specific relief for sales, refinancing, or to allow priority for a new lender.

For more detailed procedural steps and forms, see FinHelp’s related guides: How to Handle a Notice of Federal Tax Lien: Steps and Options (https://finhelp.io/glossary/how-to-handle-a-notice-of-federal-tax-lien-steps-and-options/) and Understanding the IRS Fresh Start Withdrawal of a Notice of Federal Tax Lien (https://finhelp.io/glossary/understanding-the-irs-fresh-start-withdrawal-of-a-notice-of-federal-tax-lien/). To understand downstream credit implications, also see How Tax Liens Affect Your Credit and Ways to Remove Them (https://finhelp.io/glossary/how-tax-liens-affect-your-credit-and-ways-to-remove-them/).

Frequently asked practical questions

  • How long does an NFTL last? Generally, the lien exists until the tax debt is satisfied or the IRS issues a Certificate of Release. The federal collection statute (usually 10 years from assessment) governs how long the IRS has to collect; the lien may be extended by agreement or through certain events. Confirm the Collection Statute Expiration Date on your IRS account transcript.
  • Will paying the tax automatically remove the NFTL? Payment starts the release process, but public records need to be updated. After the balance is paid, the IRS will issue a release; confirm the release with your county recorder.
  • Can I refinance with an NFTL? Possibly, but the lender and title company must agree. Options include paying the tax at closing, obtaining a discharge of the property, or securing the IRS’s subordination for the new loan.

Sources and authoritative guidance

Professional disclaimer

This article is educational and informational only and does not constitute tax, legal, or financial advice for a specific situation. For actions affecting your tax account or property rights, consult a licensed tax professional, CPA, enrolled agent, or tax attorney.

Final practical advice

Act quickly, verify the notice, and open communication with the IRS while you document financial options. In my practice, proactive communication combined with a clear plan—payment, installment agreement, or a negotiated solution—reduces the risk of enforced collection and often protects the ability to sell or refinance property. Use the IRS resources above and the linked FinHelp guides to prepare before you call the IRS or an advisor.