The collection process for unpaid federal taxes is public knowledge and follows a predictable course. If a tax balance remains unpaid for long enough, a notice of federal tax lien may be filed. If that occurs, the effects of the tax lien can be modified by subsequent actions taken by the tax filer.

Although a tax lien technically exists when the IRS mails out an initial collection letter, the actual lien notice is a paper document filed with your local courthouse. A notice of federal tax lien has negative financial implications for your credit score and your ability to sell property.

Even though an unpaid tax balance is for a specific amount, a federal tax lien attaches to all of your property. A practical response is to utilize one of the approved IRS procedures to modify the lien. There are four primary methods to obtain a certificate to alter the legal status of the original lien:

Certificate of release

The most obvious method to eliminate a tax lien is to pay the balance in full. The IRS automatically issues a certificate of release upon full payment. Even though the lien is removed, the filed documents still exist and may continue to affect your credit report for some time.

Certificate of subordination

The IRS has the ability to subordinate its own interest in a lien if the subordination assists in the collection of the unpaid tax. Lenders are more willing to provide funds for property financing if their own loan position is protected. A certificate of subordination selectively provides preferential treatment to a specific entity to hopefully produce greater tax revenue.

Certificate of discharge

A notice of federal tax lien applies to all asset categories. A certificate of discharge allows specified assets to be removed from the lien and sold. The IRS requires that sales proceeds be applied to the related tax balance. Other assets remain subject to the lien.

Certificate of withdrawal

The IRS has the ability to remove the filed lien notice. Although the underlying tax lien remains, removal of the public notice serves to improve your prospects for raising funds. A formal notice of withdrawal is filed in the same courthouse which received the original lien.

Each type of lien modification requires a specific IRS form or prescribed procedure. Filing the form most appropriate for your situation is the first step toward resolving a tax lien. For further information, contact a specialist experienced in legal services related to tax preparation. To learn more, contact a company like Bauer & Associates Ltd with any questions you have.