Finally, some good news - make that great news – from the IRS. They are lightening up on tax liens. As I’ve written before, the IRS’s draconian tax lien policy has ruined millions of Americans’ credit ratings, and probably made it even more difficult for them to pay the debt they owe to the IRS.
The background: The IRS has been typically filing a Notice of Federal Tax Lien when taxpayers owe $5000 or more and can’t pay it off immediately. Tax liens are reported by the major credit reporting agencies, and are among the most serious type of negative information on credit reports. If a tax lien appears on your credit report, you can expect your FICO scores to take a drastic hit — in some cases up to 200 points; and you can forget about refinancing your home or getting a new credit card to pay off the IRS.
Under the new policies announced by the IRS, here is what’s happening. The IRS is:
Significantly increasing the dollar threshold when tax liens are generally issued, resulting in fewer tax liens. The limit rises from $5000 to $10,000 and will be reviewed again in a year. Generally, a tax debt of less than $10,000 should no longer result in the automatic filing of a tax lien.
Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill. Without this change, tax liens remain on credit reports seven years from the date they are paid or satisfied. Under the new guidelines, liens will now be withdrawn once full payment of taxes is made — if the taxpayer requests it. That means the tax lien can be removed from the consumer’s credit reports, not just listed as paid. The IRS says it is streamlining its internal procedures to allow collection personnel to withdraw the liens.
[Consumer Resource: How to Correct an Error on a Credit Report]
Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement. Even if you can’t pay the IRS in full right away, you may be able to have the tax lien withdrawn if you enter into an installment agreement and allow the IRS to debit the payments from your bank account each month. Under the new guidelines, if you have an unpaid assessment of $25,000 and enter or convert to a Direct Debit Installment Agreement (and make several payments on time), your tax lien will be withdrawn upon request.
If you already are trying to pay off past due taxes and have a tax lien on your credit reports, contact the IRS or your tax advisor immediately to find out whether you can take advantage of these new policies. And while you don’t want to owe the IRS, it’s good to know that you may be able to protect your credit reports and scores if you do.
Update: To learn how this program is helping taxpayers, read How Removing A Tax Lien Affects Your Credit.
Gerri Detweiler Gerri Detweiler is Credit.com's Director of Consumer Education. She focuses on helping people understand their credit and debt, and writes about those issues, as well as financial legislation, budgeting, debt recovery and savings strategies. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.com.
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I have had a tax lien on my credit score since 2000. It was released by the IRS in 2006. However, it still shows up on Experian and lowers my otherwise good credit by 100 points.
Do I contact the IRS to request having them remove it, or contact Experian? Thanks
You need to start the process by filing Form 12277 Application for Withdrawal of Tax Lien with the IRS.
Darice,
That’s a great question! Under the FCRA it can remain for seven years after it is paid, so contacting Experian won’t help. However, my understanding is you can ask the IRS to withdraw it under the new Fresh Start program. If they withdraw it, then it will be removed from your credit reports. I have asked the IRS for more details on exactly how taxpayers can ask for the withdrawal but they have not yet responded.
I would suggest you start by calling the IRS at 1-800-829-1040. Tell them you want to find out how to get the lien withdrawn. Will you let me know what you find out?
Gerri
You file form 12777 explaining why you want the lien removed from your tax report, then they send form 10916(c) “Withdrawal of Filed Notice of Federal Tax Lien” to you. That form goes to the credit bureaus along with your request to have the item removed.
I read somewhere that a tax lien removal can bump your score by 100 points? Is that true?
Helpful! Thank you.
I just recieved a facsimile of a Withdrawal of Tax Lien. It took about three weeks after filing the 12277.
Not bad for Government Work!!!
Cool! Check your credit reports and let us know whether it’s been removed.
I had a tax lien placed on my home for $15,000 back in September of 2001. When I tried to do a reverse mortgage they saw it and told me that it would have to be paid from the money I was supposed to get. So I put things on hold. I filed for bankruptcy in January of this year. The bankruptcy ended successfully in April of this year. I have pulled several credit reports since then. The lien no longer shows up on my credit scores. The lien was supposed to drop off automatically in September of this year automatically. If it has dropped off already, I want to proceed with the reverse mortgage. Why wait and maybe see them do another one for ten more years? I will be able to put that $15,000 in my pocket instead of giving it to our government. Can I assume it is over since it doesn’t seem to be on any of the major credit reporting agency databases anymore? If not where should I look to get the correct answer?
Jay,
If it’s not showing up on your credit reports then I see no reason why it should reappear in the future. Keep copies of your reports showing that it’s been removed just in case, but if I were you, I wouldn’t worry about it.
Gerri
Gerri,
I have several questions I hope you can help me with. First, I filed BK in 2004 and have recently come out of BK. My credit report shows the tax lien and I would like it to be removed. Will it automatically drop off or should I write the government to remove it? Second, I have several items on my credit report that reflects it was included in the BK. Can I request them to be removed if they are over 7 years old? Lastly, would you recommend having a debt removed from my credit report if its older than 7 years but shows that it is payed off or closed as paid? I am concerned to have anything removed if it hurts my credit score. Please advise.
Rick
Rick,
Did you file Chapter 7 or Chapter 13 bankruptcy? Was the tax lien discharged in your bankruptcy? If not, when was it satisfied (settled or paid)?
Can this form be used for the removal of state tax liens also?
No, this is a program the IRS has developed for federal taxes. You’ll need to find out whether similar options are available in your state.
BAD NEWS EVERYONE:
I just had 3, count them 3 BIG TAX LIENS removed (nor released, removed) from my credit report. These liens totaled over $200,000.
My credit score went up ZERO points. None, nada, zip, nothing. However, on the same day I had a hard inquiry on my account because I applied for a credit card (a crime in this country I take it). For that infraction my score dropped 20 points.
IN SUMMARY:
The major tax liens expunged from my report – zero benefit.
1 hard inquiry – lost 2 points.
The game is rigged people. The credit agencies are corrupt and in league with the lenders to keep our scores low so we can be charged high interest rates.
1 hard inquiry – lost 20 points (not 2).
Bill,
I just had a Fed Tax Lien removed, and I gained an average of 118 points on my FICO. My lien was less than a year old though, so I guess perhaps the time since the lien might have been a factor… But I tend to agree…the credit agencies are in bed with the lenders…
Dave
I am dealing with the IRS now on a tax debt. It has been a major headache. I was laid off my job in 2007 and when I called in to report this to the IRS collection people their response was to immediately file a tax lien against my home. Here it is 5 years later and I am laid off once again and their response was to file additional tax liens. I am filing for bankruptcy and my bankruptcy attorney has told me not to worry and that the old taxes from 2003-2005 will be removed. That will leave me only a tax debt of 9K to deal with. Also, they just extended the repayment period to 72 months. That will help a lot of folks. So I don’t worry too much.
I would like to know how do I start the process to remove the IRS lien and if I file bankruptcy will that do it. I was told by a lawyer that filing bankruptcy will not remove the IRS lien on my house is that true.
Marcie –
Filing for bankruptcy is not one of the conditions for getting a tax lien removed under the IRS Fresh Start program that we described in this article. Your attorney is the best person to advise you here. In addition, the IRS publishes some information about tax liens that may be helpful to you as you research your options. Finally, you may want to talk with a tax professional who handles these kinds of matters. They may be able to work with you and your attorney to find a way to get the lien removed.
Is it true that there is a statue of limitations on tax debts even if you have an installment agreement? It is my understanding that the time doesn’t end until 10 years from the IRS date of assessment, but does it really end at the 10 year mark? My husband’s debt won’t be paid off by then (due to interest and penalties), but I was hopeful that the lien on our home would be lifted at that point.
I had $30,000 of taxes discharged thru bankruptcy, chpt 7. I applied for request for withdrawal and was denied. Where in the code or IRS regs. does it specifically exclude bk from qualifying under the Fresh Start Program?
Alan
Alan –
Did they give you a specific reason why your request was denied? I don’t see a publication that explicitly states that a tax lien can be withdrawn after it is discharged in bankrupty. (I am not a tax advisor so that doesn’t mean it doesn’t exist.) Here is the general IRS info about tax liens under the Fresh Start Program.
Thank you, Gerri. I have a call into the Advocates office to see if they can shed any light on this questions.
Alan
Hi, I am almost done with paying some back taxes my husband accured with an LLC.
We started in the 49000. range and there is now a light at the end of the tunnell.
We are currantly looking into purchasing our first home. Our credit scores are good but the tax lien is holding up progress. we are considering a possible loan to pay this the rest of the way off. Will the IRS withdraw the lean if I pay in full?
Tracy –
I’d suggest you talk with a tax professional and/or the IRS to find out if this would qualify to be removed when you pay it. I’d like to be more definitive but I haven’t seen detailed enough information to point you to…
My husband and I are down to the final 6 payments on our installment agreement with the IRS. We had been paying through their EFTPS site and converted to an installment agreement in order to qualify for the Fresh Start Program. We submitted Form 12777 last week requesting to have the liens (three of them) removed. Wish us luck! We are hoping our scores go up so we can refinance our house at a really good rate!
Good luck! Please let us know what happens. I’d also suggest you sign up for the free Credit Report Card and get your credit scores now, then see how they change once the tax liens are off your reports.
Waiting to hear good news from you.
Question: My husband just received a Notice of Federal Tax Lien stated that it was filed on 11/28/12, how long does it take before it actually shows up on his credit report?
Probably 60 – 90 days but it could be as little as 30 days. Make sure you check out the Fresh Start program as soon as possible to see if that will help him get the lien off his credit reports.
He owes approximately 60K, the IRS has him placed in uncollectable status and we are working on an offer in compromise because his income has decreased by more than 50%. The reason I was asking is i am trying to buy a home and even though he is not on the loan at all it is an FHA so they will run his credit and they said if the lien show up on his credit they will not approve the loan (community property state) We were not married at the time of the debt.
Ahhh…it does sound like you’ll need to resolve this so you can buy a home without worrying about repercussions.
i have old tax liens(some satisfied/released some unsatisfied) on my credit report that will have been filed(unsatisfied) 10 years ago coming up in 12/2013. they are still showing on my credit reportand i understand they remain for 10 years from filing date or 7 years from release or date paid. i dont know what to do because i have some paid liens that are on the 7 year removal time frames some unsatisfied that are still on the 10 year removals and some that the IRS has confirmed have been released due to expiring statutes but the credit agencies still show as unsatisfied. what do you recommend? inform credit agencies they’ve self released or do nothing and let the agencies remove them based on their 10 year time frame 12/2013.
Thanks to everyone for your wonderful insight. I am now starting the process of removing a tax lien. Without all your comments I wouldnt know where to start.
Let us know how it goes and how long it takes OK?
I have a tax lien and doctor’s judgement. I just got a job. I am looking to rebuild my credit with a prepaid credit and a secured credit card. Can the IRS and my doctor’s judgement go after my secured and prepaid credit cards?
Thanks in advance!
Jo
I doubt it – especially with the secured card since that is a security deposit with the issuer. But I can’t say for sure. If you were to load a large amount of money on a prepaid card, for example it’s possible they might try to get at it.
Hi All!
I am 25 years old and thinking about buying my first home. I lived out of the country (WAY out, like in Africa) most of my life so I was not given the Credit Bureau handbook when I was born and did not realize how important all this credit stuff is. Having said that, I worked as a freelance writer for two years (part-time job) and ended up having liens (2) placed against my wages (at my full time job) for unpaid tax on my part-time income on the State level. Ignorance is no excuse for anything, but I did not realize that different working statuses had different tax payment procedures. The moment my payroll manager showed me the letter, I immediately called and paid in full before anything was even enforced. They were released immediately. So now I’m like, great, this would have greatly impacted my fledgling credit (only one credit line open, car loan, 3 years, no defaults or late payments ever) and I am gonna try like anything to have the state withdraw, though I realize the attempt may be futile. I guess my main question is this: if it takes 30-90 days for the credit bureaus to get wind of a lien, but my liens were released within days of them being filed, do the bureaus still receive notice of it? Or do they just report that the lien was filed and satisfied? I realize that pulling my reports would be the final answer for this, but I am at work and worrying and can’t pull anything right now. I suppose at my age I can afford to go several years before I buy a home, but it just makes me ill to think of all the money that is being thrown out of the window through renting. Thanks and best of luck to you all in your credit endeavors.
They might say that but it isn’t true. I only owed $2650.00 for a prior year but had $1985.00 in unclaimed refunds and was assessed for almost $13,000 . And i lost one of the best jobs i ever had in my life over it also thanks IRS
We are in a installment agreement with the IRS and owe around $80,000 without
penalties and interest and have been faithfully paying for around 9 years. They have placed liens on our credit report and we are wanting
to refinance our home. Mortgage companies are not approving us because of these liens.
Would the Fresh Start program be for us? Or look into doing a Subdination clause with
the IRS?
Caroline – My understanding is that you would either have to pay the liens off or get your balance down to $25,000 or less in an installment agreement to qualify for the Fresh Start Initiative. You may need to try to get a subordination instead. However, I am not a tax professional so you may want to get professional advice.
I had a tax lien against me filed but it was part of my chap 13, which I paid in full. The state sent me a expunged letter for this lien but it still shows on my credit report. I thought expunged meant like it never happened