A tax lien is a mechanism that both the IRS and the MDR use to secure their interest in taxpayers’ personal and real property. To get more information regarding tax liens and the corresponding Notice of Filing of Federal Tax Lien (NFTL) and Lien Notice that the IRS and MDR file, please refer to our other blog entries: here and here.

For many taxpayers, getting the tax lien released after they have satisfied their obligations is critical to their plan to restore their financial well being. In fact, under the IRS’s new Fresh Start program, taxpayers are actually eligible to request that the IRS withdraw the NFTL following the issuance of the lien release.

Internal Revenue Service

In situations involving a NFTL, the IRS will release a federal tax lien when:

1. The debt is paid in full;
2. Payment of the debt is guaranteed by a bond; or,
3. The period for collection has ended.

In the first and second situations, the IRS will issue a Certificate of Release of Federal Tax Lien (Certificate) to the same state and local authorities with whom they filed the Notice of Federal Tax Lien. Unfortunately, in too many instances, the taxpayer does not receive a copy of that Certificate. For credit restoration purposes or to verify that the associated debt has been satisfied, the taxpayer should contact the state and local authorities that received the Certificate and either request a copy of it or some letter confirming its receipt. The taxpayer can also request a copy from the IRS by following the instructions in Publication 1450. The IRS cannot, however, provide the taxpayer with the official recording information. The taxpayer can only obtain that information from the state or local authority responsible for filing and releasing the NFTL.

In the third situation, when the period for collection has ended, the IRS will not issue a Certificate. Instead, the IRS relies on the fact that the NFTLs it files are self-releasing. That means that if the re-filing deadline passes or the statutory period for collection expires, the NFTL is automatically released. The language regarding this self-release is located directly underneath the taxpayer’s name and address on the original NFTL.

Minnesota Department of Revenue

The MDR has its own mechanisms for issuing lien releases.

If the debt is paid in full using secured funds, which the MDR defines as cash, cashier’s check, money order, state tax refund, bank wire transfer, escrow payment from a title company after a closing, and credit card payments entered by a MDR collector, then the lien release is issued immediately. If the debt is paid via unsecured funds, which the MDR defines as payments of any other kind, then the lien release is issued within 30 days. According to Minnesota Statutes Section 270C.63, the MDR will not issue a lien release for expired Lien Notices because the Lien Notices do not attach to any property interest of the taxpayer.

Depending on the circumstances, taxpayers may need to explore the administrative channels detailed above to convince either the IRS or the MDR to provide the lien release documentation that they need to improve their financial position or restore their financial well-being. In some instances, it may be more efficient to contact the state or local authority that processed the lien and request proof of its release from them.