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 Under the new guidelines, liens will now be withdrawn once full payment of taxes is made — if the taxpayer requests it.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 Even if you can’t pay the IRS in full right away, you may be able to have the tax lien withdrawn if you enter into an installment agreement and allow the IRS to debit the payments from your bank account each month.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and enter or convert to a Direct Debit Installment Agreement (and make several payments on time), your tax lien will be withdrawn upon request.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.
Gerri Detweiler Credit.com's Personal Finance Expert, Gerri focuses on financial legislation, budgeting, debt recovery and consumer savings information. 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.comTalk Credit Radio. Reach Gerri at creditexperts@credit.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.