IRS Tax Lien Terms Explained
Understanding IRS terminology is the first step to resolving your tax debt. This glossary covers key terms Texas taxpayers need to know.
Notice of Federal Tax Lien (NFTL)
A public document filed by the IRS with the county clerk to notify creditors that the federal government has a legal right to a taxpayer's property. In Texas, NFTLs are filed in the county where property is located.
Texas Example: If you own a home in Harris County, the IRS files the NFTL with the Harris County Clerk's Office, making it part of public records.
Federal Tax Lien
The government's legal claim against your property when you neglect or fail to pay a tax debt. It attaches to all your property including real estate, personal property, and financial assets.
Texas Example: If you owe $25,000 to the IRS, a federal tax lien protects the government's interest in your Houston home, vehicles, and bank accounts.
Offer in Compromise (OIC)
An agreement between a taxpayer and the IRS that settles tax liabilities for less than the full amount owed. Texas has one of the highest OIC acceptance rates in the Southwest.
Texas Example: A Dallas small business owner owing $50,000 might settle for $15,000 through an OIC if they can demonstrate inability to pay the full amount.
Installment Agreement
A payment plan that allows you to pay your tax debt over time in monthly installments. Texas taxpayers can set up agreements online for debts under $50,000.
Texas Example: A Fort Worth contractor owing $30,000 can set up a 72-month payment plan of approximately $417/month plus interest.
Tax Levy
A legal seizure of your property to satisfy a tax debt. Unlike a lien (which is a claim), a levy actually takes your property. Texas bank accounts and wages can be levied.
Texas Example: The IRS can levy your Wells Fargo account in Austin, taking funds to apply toward your $20,000 tax debt.
Lien Release
The IRS must release a lien within 30 days after the tax debt is paid in full or becomes legally unenforceable. The release removes the public notice.
Texas Example: After paying your $15,000 tax debt, the IRS issues a Certificate of Release of Federal Tax Lien, which you can record with the Bexar County Clerk.
Lien Withdrawal
Removes the public Notice of Federal Tax Lien as if it was never filed. This is better than a release because it completely removes the lien from public records.
Texas Example: After entering a Direct Debit Installment Agreement, a San Antonio taxpayer can request lien withdrawal, improving their credit score.
Subordination
Allows other creditors to move ahead of the IRS in priority, making it easier to get a loan or mortgage. The lien remains but takes a secondary position.
Texas Example: A Plano homeowner needs subordination so their mortgage lender can have first priority on the property, enabling refinancing.
Discharge of Property
Removes the lien from specific property while the lien remains attached to other property. Useful when selling property with a federal tax lien.
Texas Example: To sell your El Paso investment property, you can request discharge so the buyer gets clear title while the lien attaches to your other assets.
Currently Not Collectible (CNC)
A status the IRS assigns when they determine you cannot pay anything toward your tax debt. Collection is temporarily suspended but the debt remains.
Texas Example: A disabled Houston veteran with only Social Security income may qualify for CNC status, stopping IRS collection calls and levies.
Penalty Abatement
Removal or reduction of IRS penalties due to reasonable cause or first-time penalty abatement. Can significantly reduce the total amount owed.
Texas Example: A Corpus Christi business affected by Hurricane disruption can request penalty abatement for late payroll tax deposits.
Collection Statute Expiration Date (CSED)
The IRS generally has 10 years to collect a tax debt from the assessment date. After the CSED, the debt becomes uncollectible.
Texas Example: If your 2015 tax debt was assessed in April 2016, the CSED is April 2026, after which the IRS cannot legally collect.
Reasonable Collection Potential (RCP)
The amount the IRS believes it can collect from you, calculated using your assets, income, and allowable expenses. Used to evaluate Offer in Compromise eligibility.
Texas Example: Your RCP includes equity in your Dallas home ($50,000), plus 12-24 months of disposable income, minus necessary living expenses.
Form 668-W (Notice of Levy on Wages)
The IRS form sent to your employer to garnish your wages. Texas has no state income tax, but federal wage levies still apply to Texas workers.
Texas Example: Your Houston employer receives Form 668-W and must withhold a portion of each paycheck until your tax debt is satisfied.
CP14 Notice
The first IRS notice informing you of a balance due. This is your first opportunity to address the debt before collection actions begin.
Texas Example: After filing your return showing $8,000 owed, you receive CP14 giving you 21 days to pay or contact the IRS.
CP504 Notice
A final notice of intent to levy. This is the last notice before the IRS can seize your state tax refund or levy your assets.
Texas Example: After ignoring CP14 and CP501, you receive CP504 - your last chance to resolve the debt before bank levies begin.
LT11 Notice
Final Notice of Intent to Levy and Notice of Your Right to a Hearing. Gives you 30 days to request a Collection Due Process hearing.
Texas Example: Receiving LT11 means the IRS will levy your assets in 30 days unless you request a CDP hearing or resolve the debt.
Texas Franchise Tax
Texas's business tax on entities with revenue over $1.23 million. Not a federal tax but can complicate business tax situations alongside IRS debt.
Texas Example: Your Houston LLC owes both IRS payroll taxes and Texas Franchise Tax, requiring coordination between federal and state resolution.
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