IRS Letter 4281-F: What to Do About a Federal Tax Lien
This guide explains the legal effects of a federal tax lien initiated by IRS Letter 4281-F and outlines the formal process for addressing the tax liability.
When the government files a Notice of Federal Tax Lien (NFTL) for an unpaid tax debt, it sends a letter to inform you. This notice, such as Letter 4281-F, informs you of the lien and explains your right to challenge this action by requesting a hearing with the IRS Independent Office of Appeals.
What a Federal Tax Lien Means
A federal tax lien is a legal claim the government asserts against your property when you fail to pay a tax debt. The lien attaches to all your current and future assets, including real estate, vehicles, and financial assets. The filing of a Notice of Federal Tax Lien makes this claim public, putting other creditors on notice that the government has a right to your property.
An NFTL can impede your ability to obtain credit, as lenders may view you as a higher risk. It complicates selling or refinancing property because the tax debt must be settled before a clear title can be transferred. The lien secures the government’s interest, meaning if you sell any property, the proceeds may first have to satisfy the tax debt. A lien is different from a levy, which is the actual seizure of property; a lien is a claim that secures the debt.
Requesting a Collection Due Process Hearing
Your lien notification letter provides the right to request a Collection Due Process (CDP) hearing. This hearing allows you to appeal the lien filing before an impartial officer from the IRS Office of Appeals. During the hearing, you can propose collection alternatives or dispute the amount of tax owed if you have not had a prior chance to do so. Requesting a CDP hearing also pauses most collection actions, such as levies, until the appeal is resolved.
To request this hearing, you must submit Form 12153, Request for a Collection Due Process or Equivalent Hearing. The form requires your personal information, the tax periods involved, and a detailed explanation of why you disagree with the lien. Common reasons for requesting a hearing include proposing an installment agreement, an Offer in Compromise, or seeking innocent spouse relief.
The completed Form 12153 must be mailed to the address on your lien notice and postmarked within 30 days of the notice date to secure your full rights. If you miss this deadline, you may request an “Equivalent Hearing” for up to one year, but this option does not pause most collection activities while your case is considered.
Options for Resolving the Tax Debt
A CDP hearing addresses the procedural filing of the lien, but the underlying tax debt must still be resolved to have it removed. The most direct method is to pay the tax debt in full, after which the IRS is required to release the lien.
For those unable to pay at once, the IRS offers resolution options. An Installment Agreement allows you to make monthly payments until the debt is satisfied. Another option is an Offer in Compromise (OIC), which allows certain taxpayers to resolve their liability for a lower amount than originally owed based on a review of their financial situation.
Once the tax debt is satisfied, the IRS will issue a Certificate of Release of Federal Tax Lien, Form 668(Z), within 30 days. This certificate is filed with the same office as the original NFTL, extinguishing the government’s legal claim on your property.
A lien release does not remove the original Notice of Federal Tax Lien from public records, which can continue to affect your credit. To have the public notice removed, you can apply for a lien withdrawal using Form 12277. If the IRS grants a withdrawal, it is as if the lien was never filed, which helps restore your credit history.