IRS Announces Changes to Lien Process

By Alistair M. Nevius, J.D.

From the IRS

The IRS has announced a set of new policies designed to help taxpayers pay their back taxes and avoid liens (IR-2011-20). The changes to the IRS’s lien filing practices include:

  • Increasing the dollar threshold above which liens are generally filed;
  • Making lien withdrawals easier after the taxes have been paid; and
  • Withdrawing liens in most cases when a taxpayer enters into a Direct Debit Installment Agreement.

The IRS also announced that it is making it easier for taxpayers to enter into an installment agreement and is expanding its streamlined offer in compromise program.

The IRS uses liens to establish a legal claim to a taxpayer’s property when the taxpayer has an unpaid tax debt; once filed, a lien gives the IRS priority over most other creditors. While under Sec. 6321 a tax lien automatically arises when a taxpayer fails to pay taxes due after a notice and demand for payment from the IRS, the IRS will file a lien when a taxpayer’s past due balance exceeds a certain dollar amount. The IRS announced that it will “significantly increase the dollar thresholds” above which liens are generally filed; however, it did not announce what the new threshold would be. The Internal Revenue Manual currently calls for the automatic filing of a lien for unpaid balances above $5,000 (IRM §

Under the new procedures, the IRS will withdraw a lien once the taxpayer has fully paid the taxes due, if the taxpayer requests it. The IRS also says that it will streamline its internal procedures to allow collection personnel to withdraw liens.

For unpaid assessments of $25,000 or less, the IRS will allow lien withdrawals if the taxpayer enters into a Direct Debit Installment Agreement or converts a regular installment agreement to a Direct Debit Installment Agreement. The IRS says it will also withdraw liens on existing agreements upon taxpayer request. There will be a probationary period before the lien is withdrawn to satisfy the IRS that the direct debit payments will be honored.

Installment Agreements and Offers in Compromise

Currently, only small businesses with under $10,000 in liabilities can participate in the IRS’s streamlined installment agreement process. The IRS is raising the maximum to $25,000. Businesses will then have 24 months to pay off their tax debt.

Finally, the IRS is expanding a new streamlined offer in compromise program to allow taxpayers with annual incomes up to $100,000 to participate. The tax liability maximum is being raised from $25,000 to $50,000.

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