The California Franchise Tax Board (FTB) can issue a state tax lien on real or personal property to recover state tax debt. This lien protects their right to the balance owed. It also makes it difficult to sell your property or refinance your mortgage, and can damage your credit rating.
While a state tax lien does not involve seizure of your assets, it can still cause numerous financial difficulties. Getting a tax lien removed can be done in conjuncture with other tax relief strategies to eliminate your California income tax problems.
Reasons for Removal of State Tax Lien
There are several different reasons your can get a state tax lien removed. The most obvious way to get a state tax lien removed is to payoff the tax debt in full, including penalties and interest, that the lien is securing.
If you enter into an monthly installment agreement or Offer in Compromise, how does this impact your state tax lien? For Offers in Compromise, the state tax lien will generally be released by the FTB upon final approval of your offer. The FTB can choose to file a state tax lien (or not to release an existing lien) when you enter into an installment agreement. Whether the FTB chooses to file a lien or not may depend on the amount of your tax debt and the time period required to pay it off.
If you need to sell your home, you may also be able to get the FTB to release a state tax lien in order to complete the sale. This also applies if you are refinancing your home. If you are selling or refinancing for less than the loan balance, the FTB can remove the lien to allow the sale to go through. Any state tax liens on other property owned by the taxpayer will remain in effect. This is known as a partial release of a state tax lien.
Finally, you can get a state tax lien released if the lien was recorded in error. There are several situations that can cause a lien to be recorded in error. First, the underlying tax liability could have been incorrectly assessed. If the taxpayer does not actually owe the tax that gave rise to the lien, then the FTB must release the lien.
Liens can also be recorded in error if there is a mistake in how the lien was filed. If the lien was filed on the wrong person, or filed on the right person, but was not filed properly, the FTB must also release the lien. A lien filed after the expiration of the statute of limitations on the tax assessment would also be considered to be recorded in error.
In the case of an improperly recorded lien, the FTB is required to notify the three major credit reporting companies notifying them of the lien release. For other lien releases, the taxpayer is responsible for notifying the credit bureaus of the release.