The actual status is "not CURRENTLY collectible." That means the IRS will review this every 2 or 3 years until the 10 year statute of limitations applies. The federal tax lien is the equivalent to a judgment and goes on your credit records. It would not prohibit you from receiving your lawsuit settlement payment although if the IRS Revenue Officer finds out about it, the RO can levy on the payment or income stream.
After you receive the settlement, you should consider getting a tax attorney to help you negotiate with the IRS.
I hope this helps!
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The lien protects the IRS and can only be removed when you either pay what you owe, or you are in a full pay installment agreement. Unless the IRS somehow is aware of your lawsuit, and even if it knows of it, it is highly unlikely they would take any of your lawsuit proceeds.
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Unfortunately whenever the balance is above $10,000 they can file a lien and typically whenever they qualify you for currently not collectible status they file a lien. However, if you enter into an installment agreement where you agree to pay the debt off over the next six years you can get the lien removed and even get it off your credit report. If you can afford to pay around $300 you can get the lien removed. Also, if you can show that it is in the best interest of the IRS to remove the lien they might do so. If the lien would cause you to lose your job or if you could get a much higher paying job if the lien were removed you may be able to convince the IRS to remove the lien.