Tax liens can significantly impact financial health, and overall peace of mind. When the government places a tax lien on your asset due to unpaid taxes, it stakes a claim over it. This, in return, makes it even more challenging to sell or refinance them.
If you’re in the same situation, you’re probably wondering when this financial burden will end. Fortunately, tax liens don’t last forever. Knowing when it expires can help you plan your next steps and reclaim control over your finances.
This blog aims to clarify the expiration dates for federal and state tax liens and provide a roadmap for dealing with them.
What is a Tax Lien?
A tax lien is a legal claim by the government against your assets due to outstanding tax debt.
When you owe taxes and fail to pay them, the Internal Revenue Service (IRS) or state tax authority can place a lien on your assets. This includes all of your current and future assets such as:
- real estate
- business assets
Future income
- financial accounts and assets
If you do not pay the bill or make arrangements, the tax authority will issue a Notice of Federal Tax Lien or a state equivalent. This notice is then recorded with the county or state authorities in a public record.
The recording serves as a warning to other creditors that the government has a legal claim to your asset.
Federal Tax Liens vs. State Tax Liens Duration
When dealing with liens, it’s crucial to distinguish between federal tax liens and state tax liens, as each type has its own set of rules, timelines, and implications. Understanding these differences will help you better navigate your specific situation and take appropriate actions.
Federal Tax Lien
A federal tax lien is issued by the IRS when you owe unpaid federal taxes. The IRS has broad authority to place liens on your asset to secure payment of the tax debt.
Federal liens are governed by federal tax laws and have specific procedures for filing, notice, and enforcement.
The duration of a federal lien is typically 10 years from the date the IRS assesses the tax. This period is known as the Collection Statute Expiration Date (CSED). Once it passes, the lien automatically expires unless the IRS takes action to extend it.
This includes:
Obtaining a court judgment to extend the lien.
Entering into an installment agreement that suspends the CSED.
Filing for bankruptcy, which can toll (pause) the expiration period.
State Tax Liens
State tax liens, on the other hand, are issued by state tax authorities when you owe state taxes. The rules and regulations governing state liens vary from state to state. These liens can be placed on assets in a similar manner to federal liens. However, assets are subject to state-specific procedures and timelines.
State tax lien expiration periods vary widely. Some states allow liens to expire after a set period (often 7-10 years), while others, like California, allow liens to be renewed indefinitely. Always check with the specific state tax authority to determine lien expiration rules. In many cases, state tax authorities can renew liens before they expire to extend their duration.
What Happens When a Tax Lien Expires?
When a lien expires, the government’s legal claim on your asset ends. This means the lien is no longer enforceable and the government cannot use it to collect delinquent taxes.
The expiration of a lien occurs when the statute of limitations for collection has passed without the lien being renewed or extended. While the expiration can bring relief, there are still financial and legal implications to consider such as:
Release of Lien
Upon expiration, you should ensure that the lien is officially released. This involves obtaining a tax lien Certificate of Release to confirm that it is no longer valid. Acquiring this document is essential for clearing your public records and confirming the lien’s removal.
Asset Management
With the lien expired, you gain greater flexibility in managing your assets. You can sell or refinance assets without the burden of the lien. This provides more opportunities for financial maneuvering and investment.
Remaining Debt
Take note that the expiration of a lien does not erase the underlying tax debt. The government may still pursue other collection methods if the debt remains unpaid. This includes the following:
bank levies
another asset seizure
social security levies
Public Records
Even though the lien is no longer enforceable, the public record of the lien may still exist. Ensuring the lien is officially released and removed from public records can help you avoid potential complications in future financial transactions.
5 Steps to Take Before a Tax Lien Expires
Step 1: Seek Legal Consultation
The first and most important step is to consult with a tax attorney. Legal professionals, like those at J. David Tax Law, can provide you with expert advice tailored to your specific situation. They can help you:
understand your options,
negotiate with the IRS or state tax authorities, and
guide you through the process of resolving complex lien issues.
2. Paying Off the Lien
If possible, paying off the lien is the most straightforward way to resolve it. This not only removes the lien but also prevents further interest and penalties from accruing. The benefits of paying off the lien include:
immediate removal of the lien upon payment
improved credit standing and financial flexibility
- elimination of further collection actions by the IRS or state tax authorities
3. Setting Up an Installment Agreement
If paying off the entire lien is not feasible, consider setting up an installment agreement with the IRS or state tax authorities. This allows you to pay the tax debt over time in manageable monthly payments.
An installment agreement can help you spread out payments over time. Thus, allows you to avoid more severe collection actions and reduce financial burden.
4. Requesting a Certificate of Release
Once you have paid off the lien, you should request a Certificate of Release from the IRS or state tax authority. While tax liens no longer appear on credit reports as of 2018, a Certificate of Release ensures the lien is officially removed from public records, which can still affect loan applications and financial transactions.
To request a Certificate of Release, contact the IRS or state tax authority and provide proof of payment. Make sure that the release is recorded with relevant public records and keep a copy of the certificate.
5. Negotiating a Settlement
In some cases, you may be able to negotiate a settlement for less than the full amount owed, known as an Offer in Compromise (OIC). This option is available if you can demonstrate that paying the full amount would cause financial hardship.
To negotiate a settlement, a J. David Tax Law attorney will assess your eligibility, submit an application, and negotiate the terms.
Should You Just Let Tax Lien Expire?
Letting a tax lien expire might seem like a convenient solution, but it’s often not the best approach.
While an expired lien means the government loses its claim on your asset, the underlying tax debt remains. Simply put, the IRS or state tax authorities can still pursue other collection methods to satisfy unpaid taxes.
In addition, relying solely on expiration can lead to missed opportunities for resolving your debt on more favorable terms. It’s generally recommended to address the lien by consulting J. David Tax Law and exploring feasible resolution options for the payment of taxes.
Conclusion
Understanding when tax liens expire and taking proactive steps to address them can improve your financial stability. While letting a tax lien expire may seem like a straightforward solution, it’s often fraught with long-term consequences.
Take action before a tax lien expires and lead to more severe collection methods. Contact J. David Tax Law today to explore your options and take the first step toward resolving your tax lien issues.
Your Tax Relief Questions, Answered
If a tax lien is incorrectly filed against you, you have the right to dispute it with the IRS or your state tax authority. You can request a Certificate of Release by providing evidence that the lien was filed in error. In addition, you can file an appeal through the Collection Appeals Program (CAP) to have the lien reviewed and removed if it’s proven to be incorrect. Consulting with a tax debt attorney can help you navigate this process and ensure your rights are protected.
