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What is the effect of a federal tax lien?
August 21, 2015
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How do I get a tax lien removed or released?
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Can a taxpayer challenge the filing of a federal tax lien?

Yes, a taxpayer can challenge a filing of a federal tax lien. Unfortunately, however, it is usually after the fact.

A statutory tax lien is created when the following occurs:

  1. An assessment must have been made (a tax balance is due)
  2. The IRS must issue a notice and demand for payment on the outstanding balance due
  3. The taxpayer must have neglected or refused to pay

A statutory tax lien is also called a “secret” lien because although it exist, it is not known to other creditors until the NFTL has been filed. Once however, the NFTL is filed, the IRS must generally notify the taxpayer within 5 business days after the date of fling.   A taxpayer can challenge the lien filing by requesting a Collection Due Process Hearing but, by then, the damage has been done because the NFTL has been filed. Once the NFTL is filed, the taxpayer has 30 days to exercise their appeal rights.

If however, the IRS gives the taxpayer a heads up that a NFTL will be filed, the taxpayer can file a Collection Appeal Protest to request that the NFTL is not filed. However, note that the taxpayer must prove to the IRS how the tax lien will create economic hardship for the taxpayer if the NFTL is filed. The argument has to be more than the negative impact on a taxpayer’s credit history.