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How can i remove a tax lien filed on my home for unpaid 940/941 taxes?

Los Banos, CA |

i just received a bk 7 discharge. i just talked to the IRS about 940/941 taxes owed & was told i am being placed on unable to collect status at this time due to my financial status and a lien will be placed on my property today. once my situation changes & i am able to make payment arrangements (hopefully i can obtain an OIC ) will i be able to have the lien removed while on payments or not until the agreed amount is paid in full ? how difficult will it be to have it removed? should i be filing bk 13?

Attorney Answers 5

  1. The lien will remain until it is paid or it expires (and is not renewed) after 10 years.
    A Chapter 13 will require you to pay it within 5 yrs while a payment plan with the IRS may give you more time.

  2. I'm not addressing bankruptcy in this answer, only IRS procedures. In general, an IRS lien will be released when you pay the tax. You must then ask the credit bureaus to remove the lien from your credit report.

    If you file an OIC and it is accepted, the lien will be released once you've paid in full. You can then ask the IRS to withdraw the lien by filing Form 12277. I highly recommend using a tax attorney for this process.

    If you cannot qualify for a settlement, it is possible to have the IRS withdraw the lien if you agree to a monthly payment plan and authorize direct debit withdrawals. The applicability of this option will depend on how much you owe. Once again, you should strongly consider hiring a tax professional to ensure the best possible results.

    Robert Hoffman is a tax attorney licensed in California. The information presented here is general in nature and is not intended as a substitute for legal advice. This posting does not create any attorney-client relationship with the author. For competent advice about your particular situation, consult your own attorney.

  3. Tax liens go away (1) when they are paid; (2) when the IRS removes them. A proper Chapter 13 can deal with the pure tax component of the IRS claim with interest and penalties split off into an unsecured, non-priority debt. IRS may give you more time than the 60 months available under BK rules, but they want you to pay the tax, interest and penaltiies, 100%.

  4. Unfortunately, the trust fund component of your Form 941 payroll taxes (i.e., the income taxes withheld from the wages and salaries of the employees and the employees' 50% portion of the FICA taxes), are non-dischargeable, regardless of the age of those liabilities. Under 11 U.S.C. Sec. 507(a)(8)(C), "a tax required to be collected or withheld and for which debtor is liable in whatever capacity," is a priority tax claim, which is nondischargeable pursuant to 11 U.S.C. Sec. 523(a)(1)(A). Thus, as Mr. Whitaker has stated, the only way to obtain release of your payroll tax lien is to pay in full the trust fund component of those taxes or wait for expiration of the 10-year collection statute of limitations.

    In addition, you may wish to consider filing a Chapter 13 petition to arrange for payment of the trust fund taxes that were not discharged in your Chapter 7 bankruptcy case and thereby obtain release of the liens upon full payment of those liabilities (some bankruptcy practitioners refer to this as the "Chapter 20" phenomenon). If you choose to file a "Chapter 20", be sure to hire qualified bankruptcy counsel who is familiar with tax dischargeability issues in bankruptcy or who will consult with a bankruptcy tax attorney.

    Good luck in your efforts!

    The answer to this question does not establish an attorney-client relationship. Moreover, this attorney is licensed to practiced law ONLY in the State of California. Answers to questions from users in other jurisdictions or states are meant to provide only general information. Users should contact a local attorney in their jurisdiction or state to address their specific tax issue.

  5. My esteemed colleagues have given valuable advice. I just like to add that while in BK a taxpayer is not eligible for an OIC. Good luck.

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