IRS Form 668-Y - How to Resolve a Federal Tax Lien and Protect Your Assets

Receiving a notice from the IRS can be a stressful experience. One of the most serious notices a taxpayer can receive is Form 668-Y, the Notice of Federal Tax Lien. This document signifies that the federal government has a legal claim to your property due to unpaid taxes. Understanding what this means and what your options are is crucial to resolving your tax issues and protecting your assets. 

What is a Federal Tax Lien? 

A federal tax lien is a legal claim by the government against your property when you neglect or fail to pay a tax liability. The lien protects the government’s interest in all your property, including real estate, personal property, and financial assets. A federal tax lien comes into existence after the IRS assesses your liability, sends you a Notice and Demand for Payment, and you fail to pay the tax in full and on time. 

The Notice of Federal Tax Lien (Form 668-Y) 

While the federal tax lien itself arises automatically by law, the IRS files a public document, the Notice of Federal Tax Lien (NFTL), also known as Form 668-Y, to alert creditors that the government has a legal right to your property. This public notice is filed with local and state authorities, such as the county recorder of deeds. The filing of the NFTL establishes the government's priority against the claims of other creditors. 

How a Federal Tax Lien Affects You 

The filing of a Notice of Federal Tax Lien can have significant consequences: 

• Assets: A lien attaches to all of your current assets and any assets you acquire during the duration of the lien. 

• Credit: The presence of a federal tax lien on your public record can severely limit your ability to obtain credit, such as loans or mortgages. 

• Business: For business owners, the lien attaches to all business property and rights to business property, including accounts receivable. 

• Bankruptcy: Even if you file for bankruptcy, your tax liability, the federal tax lien, and the Notice of Federal Tax Lien may continue after the bankruptcy proceedings. 

Lien vs. Levy: What's the Difference? 

It is important to understand the distinction between a lien and a levy. A lien is a legal claim that secures the government's interest in your property as collateral for a tax liability. A levy, on the other hand, is the actual seizure of your property to satisfy the tax liability. If you do not pay or make arrangements to settle your tax liability, the IRS can levy, seize, and sell any type of real or personal property you own or have an interest in. 

How to Resolve a Federal Tax Lien 

Fortunately, there are several options available to taxpayers to resolve a federal tax lien: 

• Pay the Tax Liability in Full: The most straightforward way to get rid of a federal tax lien is to pay your tax liability in full. The IRS will then release the lien within 30 days. 

• Discharge of Property: A discharge removes the lien from a specific piece of property. This can be useful if you need to sell a property but the sale price will not be enough to cover the entire tax liability. 

• Subordination: Subordination does not remove the lien, but it allows other creditors to move ahead of the IRS in priority. This can make it easier to get a loan or mortgage, such as when refinancing. 

• Withdrawal: A withdrawal removes the public Notice of Federal Tax Lien from your record. This can help to improve your ability to access credit, but you are still liable for the tax. The IRS may grant a withdrawal if you enter into an Installment Agreement to pay the liability or if it is in the best interest of both you and the government. 

Take Action Now! 

Dealing with a federal tax lien can be complex, but you don't have to do it alone. For more in-depth information and a step-by-step guide on how to handle IRS tax problems, watch our free video. 

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If you've received a Form 668-Y or are struggling with a tax liability, it's important to act quickly. We can help you understand your options and find the best solution for your situation. 

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