People often ask whether setting up a payment plan will keep a tax lien off their credit or their house. The honest answer: a payment plan does not make the federal tax lien go away. But the type of plan you choose, and how you pay, can affect whether the IRS files a public notice of the lien and whether a notice already filed can be withdrawn.
To understand why, it helps to separate two things that people often lump together: the lien itself, and the notice of the lien.
The lien and the lien notice are different things
The lien
Under Internal Revenue Code section 6321, if you owe a tax and neglect or refuse to pay it after the IRS demands payment, the amount becomes a lien in favor of the United States on all of your property and rights to property. Section 6322 says the lien arises when the tax is assessed and continues until the liability is paid or becomes unenforceable because time has run out.
This lien exists automatically. No one has to file anything for it to exist.
The Notice of Federal Tax Lien
The public part is the Notice of Federal Tax Lien, often called an NFTL. Under section 6323(a), the lien is not valid against certain third parties, such as purchasers, holders of security interests, mechanic's lienors and judgment lien creditors, until the IRS files that notice. Filing it puts the world on notice that the government has a claim. That public filing is what most people are worried about when they think about a "tax lien."
When the IRS generally files a lien notice
The IRM's general guideline is to consider filing a lien notice when the aggregate unpaid balance is $10,000 or more (IRM 5.12.2.6; IRM 5.19.4.5.3.2). That is a guideline for when the IRS looks at filing, not a promise that it will or will not file in a particular case.
How your payment plan affects the lien notice
Different plans come with different lien rules:
| Type of plan | Lien notice rule | Source |
|---|---|---|
| Simple Payment Plan ($50,000 or less) | A lien filing determination is not required, but the IRS may still file at its discretion | IRM 5.14.5.2 |
| Guaranteed installment agreement | A lien filing determination is not required | IRM 5.14.5.3 |
| Other installment agreements (for example, larger balances or partial payment plans) | The IRS generally must make a lien filing determination | IRM 5.14.1.4.3 |
In practice, this is one reason the Simple Payment Plan (formerly called a streamlined installment agreement) is attractive. If you owe a bit more than $50,000, you can pay down to $50,000 first to qualify (IRM 5.14.5.2). See Simple Payment Plans and guaranteed installment agreements.
For balances over $50,000 or partial payment plans, expect the IRS to consider a lien notice as part of approving the plan. See larger payment plans and partial payment installment agreements.
Getting a lien notice withdrawn
Withdrawal is different from release. A withdrawn notice is treated as if it had never been filed. Internal Revenue Code section 6323(j)(1)(B) allows the IRS to withdraw a lien notice if you have entered into an installment agreement under section 6159 to pay the liability, unless the agreement provides otherwise.
The IRM sets out when the IRS will withdraw a lien notice for a direct debit plan (IRM 5.19.4.6.4.1):
- Your balance is $25,000 or less.
- The plan will pay the balance in full within 60 months or by the Collection Statute Expiration Date (CSED).
- You have made at least three consecutive direct debit payments.
- You ask in writing, using Form 12277.
If your balance is a little over $25,000, paying it down and switching to direct debit may open this door. After a withdrawal, section 6323(j)(2) says that on your written request, the IRS will make reasonable efforts to notify credit reporting agencies and the creditors you name that the notice was withdrawn.
When the lien is released
A release is what happens when the debt is gone. Under Internal Revenue Code section 6325(a), the IRS must issue a certificate of release of the lien within 30 days after it finds the liability has been fully paid, with interest, or has become legally unenforceable. Paying off your payment plan in full leads to a release.
A release and a withdrawal are not the same. A release confirms the debt is satisfied. A withdrawal removes the notice as if it had not been filed, and the IRS can withdraw a notice while you are still paying.
What a payment plan does protect you from
A plan protects you from levies, which is where the IRS actually takes money or property. Internal Revenue Code section 6331(k)(2) bars a levy while your installment agreement request is pending, for 30 days after a rejection (and during an appeal filed within that time), while the agreement is in effect, and for 30 days after a termination (and during a timely appeal). For more, read what a payment plan protects you from.
Practical tips
- Check your balance against the thresholds. $50,000 for a Simple Payment Plan and $25,000 for the direct debit withdrawal rule are the key numbers.
- Consider paying down first. Getting under a threshold can change the lien outcome. The payment plan calculator can help you plan.
- Choose direct debit. It is required for the withdrawal rule and lowers your setup fee. See payment plan fees.
- Keep every payment on time. A default can lead to termination and the loss of levy protection.
- Request withdrawal in writing once you qualify. It does not happen automatically.
Getting help
If you are trying to sell or refinance a home or protect your business credit, the lien question can matter as much as the payment amount. Talk to a tax attorney before you set up your plan. You can reach our office through GetIRSHelp.com or at (813) 229-7100.
Frequently asked questions
Does a payment plan remove a federal tax lien?
No. Under sections 6321 and 6322, the lien arises at assessment and continues until the debt is paid or becomes unenforceable. A payment plan can affect whether a lien notice is filed or withdrawn, and paying the plan in full leads to a release under section 6325(a).
Will the IRS file a lien notice if I get a Simple Payment Plan?
A lien filing determination is not required for a Simple Payment Plan, but the IRS may still file one at its discretion (IRM 5.14.5.2). The same no-determination rule applies to guaranteed installment agreements (IRM 5.14.5.3).
How do I get a lien notice withdrawn?
For direct debit plans, the IRM allows withdrawal when the balance is $25,000 or less, the plan pays in full within 60 months or by the CSED, you have made at least three consecutive direct debit payments, and you request it in writing on Form 12277 (IRM 5.19.4.6.4.1).
What is the difference between a lien release and a lien withdrawal?
A release under section 6325(a) is issued after the liability is paid or becomes unenforceable. A withdrawal under section 6323(j) removes the notice as if it had never been filed, and can happen while you are still paying under an installment agreement.
At what balance does the IRS usually file a lien notice?
The IRM's general guideline is an aggregate unpaid balance of $10,000 or more (IRM 5.12.2.6; IRM 5.19.4.5.3.2), but the IRS decides case by case.
This guide is general information, not legal advice. Tax law changes and every case turns on its own facts.