How Can You Remove a Tax Lien?
The IRS is far from perfect, and does make mistakes. There are a few perfectly legitimate ways to remove a tax lien if you know where to start.
You Can Appeal the Lien
You can get the IRS to remove Notice of Federal Tax Lien if you can show that the IRS was in the wrong. A lien can be removed with tax resolution on appeal if:
- The tax debt has already been paid in full.
- The lien was filed in error.
- The lien was filed in error and the IRS made a processing error with your return.
- The IRS did not follow proper procedures.
- You were going through bankruptcy when the lien was filed.
- You weren’t given a chance to dispute the amount assessed by the IRS.
- You wish to make spousal defenses by claiming that your spouse should be liable for the lien.
- You want to discuss collection options, like through the Fresh Start Initiative.
- The statute of limitations of 10 years on collecting the tax debt has passed.
On the notice of the lien, you are given the option to request a Collection Due Process hearing with the Office of Appeals. The request for an appeal must be made within 30 days after fifth day of the lien being filed, or by the date indicated on the notice.
We can deal with the IRS and provide assistance with filing an appeal, or requesting a lien withdrawal.
A new tax lien policy allowing for “withdrawal” gives hope to many struggling taxpayers. Withdrawal removes the lien as if it was never there, and occurs when the taxpayer’s lien is paid off, or it’s proven that the lien was filed falsely. Withdrawal is also possible if you qualify for the Fresh Start Initiative, have entered a direct debit agreement, and your balance is lower than $25,000.
In order to complete an official withdrawal of a lien, the taxpayer must make a formal request to the IRS (using IRS Form 12277, also known as Application for Withdrawal of Filed Form 668(y), Notice of Federal Lien). Once this request is filed, the IRS will return a form 10916(c), which is the magic word to open the door to cleared credit.
It is important to note that this new policy does not include tax liens held at the state levels. Those liens will still be evident on your credit reports. Also not subject to complete withdrawal are tax settlements.
Such settlements, commonly called Offers in Compromise are present when a taxpayer and the IRS settle on terms of a lien where less than what is actually owed is considered adequate payment. Due to this not being an exact repayment in full, the IRS grants what they call a “release” rather than an actual withdrawal.
The same as with a withdrawal, if you qualify for FSI and your balance is below $25,000, you can request that the lien be released. Otherwise, once your debt has been paid in full, or you’ve arranged a streamlined installment agreement, your lien will be released after 30 days.
A lien that’s been “released” means that it’s no longer attached to your property and assets, and public records will reflect the change. But unlike a withdrawal, a release will remain on your credit report for up to ten years after the debt has been paid.
Once you receive a copy of the lien release, you can use it to update your credit report with the credit reporting bureaus.
Another common term in lien removal is subordination, which allows another creditor to “subordinate” the IRS’ interest in a property and move ahead of the line. The IRS will only permit this if it’ll help them get paid more or sooner. For example: if you’re trying to refinance your home, the IRS will allow a lender to go above the lien and refinance in exchange for a cut of the proceeds.
This process is complicated, though, and professional assistance is always recommended.
How to Remove a Lien from your Credit Reports
Once you have the tax lien removed, either through withdrawal or release, it’s time to contact the three credit agencies to make sure they’ve updated your reports.
- Once you have received a Notification of Withdrawal or Release from the IRS, get a copy of your credit report (AnnualCreditReport.com) to find the status of the lien. Often, the bureaus will automatically update the lien on your report with no work on your part.
- If it has not been updated, contact each agency to dispute the lien.
- The agencies will then contact your local courthouse to establish that your information is accurate. Then each agency will alert you on how each dispute turned out, and if the lien was removed or not.
- Experian, in particular, will send instructions with what you should send to verify that the lien was released. With those documents, they should be able to update the status of the lien.
Tax liens can slash your credit score, and will tarnish your credit history for years to come. Ensure that any liens are updated or removed from your credit report as soon as possible.
How to Avoid a Property Tax Lien
Pay your taxes in full and on time! File your taxes before the IRS has the time, or the reason, to send an IRS rep out to file a tax lien against you at your local courthouse. The damage a lien could do to your credit report is serious, so it’s best to avoid having one filed in the first place.
Easier said than done, right? Well, there are a few ways you can prevent a tax lien if you can’t pay your taxes on time.
- DO NOT ignore or misplace any notices or letters the IRS sends.
- DO keep track of your tax status, and keep all of your records in a safe, secure place.
- DO respond quickly to any notices, either by phone, mail or fax. Wait too long and the IRS might feel you are trying to avoid paying the debt, and file a lien.
- DO contact the IRS immediately if you believe the tax lien was filed in error.
- DO arrange for an extension if you cannot pay your tax debt by April 15th.
- DO set up an installment agreement with the IRS if you cannot pay the debt in one full payment. If the IRS knows that you have negotiated an installment plan, they will not file a lien against you. If you fail to pay on schedule, you’ll lose your credibility with the IRS and they’ll file a lien against you immediately.
- DO contact a professional tax attorney for tax resolution if you are wary of working directly with the IRS. They can explain your options, your next steps, and help you set up any payment plans or extensions with the IRS. They can also help you file an appeal if a lien was filed erroneously.
National Tax Credit Group can help. If you owe IRS tax debt, have already received a Notice of Federal Tax Lien, or feel that a lien was filed against you wrongly, our tax attorneys will work to have your tax issues resolved once and for all.