Invoice factoring with an IRS tax lien on file is possible, but approval turns on one question: who has first claim to the invoices you want to sell. A filed Notice of Federal Tax Lien reaches your accounts receivable, so a factor will need to know how the IRS position is being handled, whether by payment, withdrawal of the notice or a certificate of subordination, before it commits money.
How a federal tax lien reaches your receivables
The IRS describes a federal tax lien as arising after it assesses the balance, sends a Notice and Demand for Payment, and you neglect or refuse to pay in time (IRS, Understanding a Federal Tax Lien, reviewed September 14, 2026). The same page says the lien attaches to future assets acquired while it lasts, so invoices you issue next month fall inside it as soon as you create them.
Before anything is filed, the lien's reach is narrower. Under 26 U.S.C. 6323(a), it "shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor" until the IRS files a qualifying notice. That public filing is the Notice of Federal Tax Lien (NFTL), which the IRS uses "to alert creditors that the government has a legal right to your property."
For receivables and other personal property, section 6323(f) treats the property as located at the taxpayer's residence when the notice is filed. For a corporation or partnership, that's "the place at which the principal executive office of the business is located," and the notice goes in the office that state's law designates. Search there before you apply.
Why an IRS tax lien stalls invoice factoring approval
If the IRS already has a filed claim to your invoices, a factor is buying collateral the government can reach first. A factor's UCC-1 filing doesn't by itself put it ahead, because for federal tax lien priority, under section 6323(h)(1), a security interest exists only once the property exists, the interest is protected under local law against a later judgment lien, and the holder "has parted with money or money's worth."
The tax code adds one narrow exception for financing already in place. Under 26 U.S.C. 6323(c), even after an NFTL is filed, the lien isn't valid against a security interest in "qualified property" covered by a written commercial transactions financing agreement entered into before the filing. The statute counts "accounts receivable" as commercial financing security, and the Treasury regulation confirms the agreement can be one "to purchase commercial financing security, other than inventory," acquired in the ordinary course of business, and gives a factor example (26 CFR 301.6323(c)-1, checked October 6, 2026).
The protection runs on two clocks. It covers purchases made before the 46th day after the filing, or before the factor had actual notice or knowledge of it if earlier. Qualified property "includes only commercial financing security acquired by the taxpayer before the 46th day after the date of tax lien filing," so later invoices fall outside it.
| Your situation | How priority in the invoices generally works | What to line up |
|---|---|---|
| Tax assessed, billed and unpaid, no NFTL filed | Under 6323(a), the lien isn't valid against a purchaser or security interest holder until the notice is filed | Your IRS balance and a payment plan, since a filing can still come |
| NFTL filed before you sign with a factor | The notice came first, so a new factor generally ranks behind the IRS | Payment in full, withdrawal of the notice or a subordination certificate |
| Factor's agreement signed before the NFTL | Protected only for purchases inside the window and invoices created before the 46th day | Subordination or a payoff plan before the window closes |
A factor that signs after the filing has no window to rely on, which is the gap a subordination certificate fills. Whether a factor will review a file with a filed NFTL at all depends on the factor, so ask first.
What an IRS certificate of subordination does
The IRS says a subordination "does not remove the lien but allows other creditors to move ahead." Publication 784 adds that the certificate lets "a named creditor" move ahead of the United States "for the property named in the certificate" (Publication 784, Rev. 12-2022). In a factoring deal, that means your factor and the receivables it buys.
26 U.S.C. 6325(d) gives three bases. The third covers a special estate tax lien, so two matter for a business:
- 6325(d)(1): an amount equal to the creditor's lien or interest that gets priority is "paid over to the Secretary."
- 6325(d)(2): the IRS believes the amount it can collect "will ultimately be increased" and that collection "will be facilitated by such subordination."
Publication 784 says (d)(2) does not require a payment, but you attach a signed and dated statement explaining how the government will collect more and how collection gets easier. Its own example is a car dealer whose wholesaler hesitated because of the lien; the dealer showed that restocking could raise its monthly IRS payment from $2,000 to $3,000. A factoring request follows the same logic with receivables in place of inventory.
A worked example of the subordination math
Every number below is an assumption for illustration; factor terms vary and the IRS makes its own call.
- Federal tax balance: $60,000, with an NFTL filed
- Current installment payment: $1,200 a month
- Proposed factoring terms: 80% advance rate, a fee of 3% of invoice value per 30 days, $100,000 of invoices a month
On a $100,000 batch the factor would advance $80,000. Without a subordination, the filed lien could reach up to $60,000 of what those customers pay, leaving as little as $40,000 free of the senior claim.
| Item | Without subordination | With subordination |
|---|---|---|
| Factor's position in the named invoices | Behind the filed NFTL | Ahead of the IRS |
| Advance on a $100,000 batch | Up to the factor | $80,000 |
| Factoring fee per month, customers paying in 30 days | $0 if it declines | $3,000 |
| Proposed IRS payment per month | $1,200 | $2,500 |
| Months to pay $60,000, ignoring interest and penalties | 50 | 24 |
The (d)(2) statement would show the IRS the bigger payment and the cash flow behind it. Be honest about cost: $3,000 a month in fees only makes sense if the business can absorb it and still make the higher payment.
Payment plans, release and withdrawal
An installment agreement doesn't move the IRS behind anyone, though it shows the balance is being handled. The IRS lien page (reviewed September 14, 2026) lays out the options:
- Release: "The IRS releases your lien within 30 days after you have paid your tax debt."
- Withdrawal: removes the public notice. Under Fresh Start, the conditions the IRS lists include owing $25,000 or less, a Direct Debit Installment Agreement that pays in full within 60 months and, for a business still operating, owing only income tax, so payroll tax debt doesn't qualify. Check the full list first.
- Discharge: removes the lien from specific property.
In the example above, $60,000 is over the $25,000 figure, so withdrawal isn't available on those numbers until the balance comes down. A tax professional can confirm eligibility.
State tax liens and Canadian deemed trusts
A state tax lien comes from state law, so the state sets its priority rules, filing office and release or subordination process. Form 14134 is an application to subordinate a federal tax lien and does nothing for a state lien. Ask the state revenue department how it handles subordination, and include state liens in your search.
In Canada, the CRA treats source deductions withheld from wages and GST/HST you collect as deemed trust amounts. The CRA says such a debt "becomes secured to the CRA over all your assets, regardless of any security interest you may have given to other creditors," and that a general security agreement isn't protected against it no matter when it was registered (Canada Revenue Agency, page dated April 10, 2024). If you're factoring in Canada, bring proof that remittances are current, and see our Canada financing guide.
The paperwork order that gets a factor to review the file
- Pull the record. Get copies of every NFTL, your current IRS balance and any state liens.
- Pick the route with a professional. Pay in full, set up an installment agreement and check withdrawal eligibility, or apply for subordination.
- Get the factor's proposed agreement. Form 14134 (Rev. 10-2024) asks for the finance company, the new financing amount and the proposed agreement if available.
- Complete Form 14134. Describe the receivables, choose (d)(1) or (d)(2), attach the (d)(2) statement, and list encumbrances senior to the federal tax lien if you don't attach a title report.
- File early. Mail it as Publication 784 directs, at least 45 days before the funding date.
- Send the factor its underwriting set. Have an aging report, invoice copies, a customer list, bank statements, the NFTL copies and your IRS payment history ready. Requirements vary by factor.
- Close on the factor's terms. Whether a factor funds on the conditional commitment letter or waits for the certificate depends on the factor.
When the file is ready, EQ Funding routes one application to factors and lenders that compete for it. Disclose the lien up front so nobody wastes a round of underwriting. See how invoice factoring works, compare factoring rates and fees, and read our factoring agreement guide before you sign.