Options When the IRS Files a Notice of Federal Tax Lien

Why this matters right now
A Notice of Federal Tax Lien (NFTL) is the IRS’s formal, public claim against your real property, personal property, and financial assets when you have unpaid federal taxes. It does not immediately take your property, but it records the government’s priority claim and can complicate sales, refinancing, and—contrary to older advice—title searches more than credit reports. Knowing your options and the procedures to remove or limit a lien can protect your credit profile, keep your real estate transactions on track, and stop collection escalations.

Immediate first steps after you receive a lien notice

• Don’t ignore the notice. Read it carefully for the assessed tax amount, tax periods, and contact information. The lien notice is not the same as a levy (which allows seizure).
• Verify the debt. Check your account transcript on IRS.gov or contact the IRS to confirm the balance and that the lien notice applies to you.
• Gather records. Collect prior tax returns, proof of payments, correspondence with the IRS, and recent paystubs or bank statements you may need for collection options.

Core ways to resolve a federal tax lien
Any permanent solution to a lien requires addressing the underlying tax debt. Common IRS options include:

1) Pay the debt in full

• How it helps: Paying the entire tax, plus penalties and interest, leads the IRS to file a Release of Federal Tax Lien. A release shows the government no longer claims the property for that debt.
• Practical notes: After the IRS files the Release, it must be recorded in the same public office where the NFTL was filed. You should obtain a certified copy and confirm county or state recording offices updated their records.

2) Request a lien withdrawal

• What withdrawal means: A withdrawal removes the public Notice of Federal Tax Lien as if it had never been filed; it’s stronger than a release for clearing public-record searches and lenders’ title reports.
• When the IRS may withdraw: Common qualifying situations include (but are not limited to): full payment of the tax; an accepted Offer in Compromise (OIC) that has been satisfied; or entering a qualifying installment agreement and meeting specific payment conditions. The IRS also considers withdrawal when doing so would facilitate collection or improve the taxpayer’s economic circumstances.
• How to request: Submit Form 12277 (Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien) or follow IRS procedures explained on IRS.gov. Keep copies of any payment receipts, OIC acceptance letters, or installment agreement proof.
• Tip: Withdrawal is discretionary — a request may be denied if the IRS determines withdrawal would harm its ability to collect.

(See FinHelp’s in-depth guide to lien withdrawal: https://finhelp.io/glossary/lien-withdrawal/.)

3) Request lien subordination

• What subordination does: Subordination doesn’t remove the IRS claim. Instead, it reorders priority so another lender’s lien (for example, a mortgage or refinance lender) can take precedence over the federal tax lien on a specific property.
• When useful: Subordination is commonly used to refinance a home or close a sale that would otherwise be blocked because the IRS lien would be senior to the new mortgage.
• How to request: The IRS evaluates whether subordination protects its ability to collect and whether the borrower pays a required amount toward the tax debt. The IRS has a standard process and forms; your lender will often ask you to initiate the IRS review.

(See: https://finhelp.io/glossary/the-process-of-releasing-a-federal-tax-lien/ for more on title and lien issues.)

4) Request discharge of specific property

• What discharge does: A discharge frees a particular property (e.g., a house being sold) from the lien while leaving the lien in place for other property and assets. It’s a targeted remedy for sales or transfers.
• Typical criteria: The IRS may grant a discharge if the sale proceeds used to pay taxes are adequate, if there is little or no equity in the property, or if the taxpayer pays the IRS an amount equal to the government’s interest in the property.

5) Negotiate an Offer in Compromise (OIC)

• What OIC is: An Offer in Compromise allows qualifying taxpayers to settle a tax liability for less than full amount when full collection would create an economic hardship or doubt as to collectibility.
• Impact on liens: If the IRS accepts an OIC, the IRS will fully satisfy the tax debt per the terms of the OIC; after payment or compliance, you can request lien withdrawal.
• How to start: Use the IRS OIC pre-qualifier and submit Form 656. Because OICs require detailed financial disclosures, many taxpayers work with an enrolled agent or tax attorney. (FinHelp has resources on Offers in Compromise: https://finhelp.io/glossary/offer-in-compromise-oic/.)

6) Installment agreements

• How they help: An installment agreement spreads payments over time and can be enough to get the IRS to release or withdraw a lien in limited circumstances, or at least stop additional collection steps like levies.
• Streamlined options: The IRS offers online and streamlined installment agreements for taxpayers who meet certain balance and filing criteria. Confirm current thresholds and eligibility on IRS.gov or with a tax professional.
• Important: Simply entering an installment agreement does not automatically remove a lien. Withdrawal eligibility may require a specific type of agreement and consecutive timely payments.

7) Currently Not Collectible (CNC) status

• What it does: If you can show the IRS you lack the ability to pay anything toward your tax debt, the account may be marked CNC. This pauses collection activity (including levies) but does not remove a lien.
• Use case: CNC is a temporary relief for taxpayers with serious financial hardship.

Appeals and dispute options

• If you believe the lien was improperly filed (wrong taxpayer, amount already paid, or procedural error), you have appeal rights. Generally you must act quickly — often within 30 days of the NFTL filing — to preserve appeal options. Keep written documentation and consider requesting a Collection Due Process (CDP) hearing if appropriate.

Common misconceptions corrected (important 2025 updates)

• Tax liens and credit reports: Since 2018 the three major credit bureaus generally stopped including tax liens and civil judgments on consumer credit reports because of data-quality concerns. That means a lien’s impact is more likely to appear in title searches and public-record checks than on your credit report. For lending decisions, some creditors will still find liens through title or public-record searches.
• Lien vs. levy: A lien is the IRS’s legal claim; it does not seize property on its own. A levy is a separate action that allows the IRS to take property or assets to satisfy the debt.
• A release is not the same as a withdrawal: A release shows the debt was satisfied; a withdrawal removes the public filing as though it never happened and is usually better for clearing title searches.

Practical checklist to move forward

1. Verify the debt on IRS.gov or by calling the number on the notice.
2. Consider immediate temporary relief options: establish an installment agreement, request CNC, or consult with the IRS about collection alternatives.
3. If you can, pay the debt in full to get a Release of Lien recorded.
4. If full payment isn’t possible, evaluate OIC, subordination (for refinancing/sale), or discharge for a single property.
5. Keep copies of the NFTL, any Releases or Withdrawals, and confirmations that county recording offices updated their files.
6. If you plan to sell or refinance property, work with your title company and lender early — they will tell you what the IRS will require for subordination or discharge.

When to get professional help

• Hire a CPA, Enrolled Agent (EA), or tax attorney if: the lien involves large sums, you’re pursuing an OIC, the IRS denied a withdrawal request, or a sale/ refinance is imminent and the IRS requirements are complex. A qualified professional helps with negotiation, appeals, and ensuring IRS forms and deadlines are met.

Sources and further reading

• IRS: Notice of Federal Tax Lien — https://www.irs.gov/businesses/small-businesses-self-employed/notice-of-federal-tax-lien
• IRS: Offer in Compromise (Form 656) and instructions — https://www.irs.gov/forms-pubs/about-form-656
• FinHelp: Lien withdrawal — https://finhelp.io/glossary/lien-withdrawal/
• FinHelp: Offer in Compromise (OIC) — https://finhelp.io/glossary/offer-in-compromise-oic/
• CFPB: What is a tax lien? — https://www.consumerfinance.gov/ask-cfpb/what-is-a-tax-lien-en-1797/

If you want, I can: create a printable checklist for your case, draft a sample Form 12277 cover letter, or outline the documents the IRS typically requests for an Offer in Compromise.