IRS Liens Removed From Credit Reports
If the IRS files a public “Notice of Tax Lien“, Form 668(y) against an individual that person’s credit score will be devastated and his ability to be hired for responsible jobs involving money management severely compromised. If all your tax returns have been filed and your total balance including interest and penalties is $50,000.00 or less you can apply on line to enter into a direct debit agreement. To be eligible you must be able to pay the entire balance within 6 years. Few people realize that after a year they can reapply to extend the debt. This will lower the payment. They can continue to do this every year.
The form is called “Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien.” Go to IRS.gov and type “form 12277″ in the search box or call 1-800-TAX-FORM. If you owe more than $50,000.00 you will not be allowed to apply on line but you can still apply. It is up to the taxpayer to initiate the request by completing this form and stating the basis for the withdrawal request.
- If you have met your obligation the IRS will remove all record of the IRS liens. The IRS liens will be PURGED by the credit reporting agencies. You must request this. It is not automatic and is easily overlooked.
- If you don’t request the removal it will be marked as “released” and will remain on record for 7 years. You need it marked as “withdrawn.”
- If you owe $50,000.00 or less and enter into a direct debit agreement, usually on a monthly basis, they will remove IRS liens. You will still be subject to interest and penalties.
- If you have an installment agreement IRS liens can be withdrawn if you are willing to set this up as a direct debit agreement.
- Application fees for the installment agreement are $120.00 for the standard agreement, $52.00 for the direct debit agreement or $43.00 if low income guidelines are met.
When the IRS withdraws its notice it means they have abandoned their position as a secured creditor. The procedure is for the IRS to file Form 10916A as a notice of withdrawal with the Court where the IRS Liens originals were filed. This form will state that withdrawal of the IRS Liens is being done because “it is in the best interest of the taxpayer and government.” They will mail you a certified copy. Send a copy of your certified copy to the credit reporting agencies. Records of IRS liens will be purged from credit reports in about 2 weeks time.
State Tax Liens Different Than IRS Liens
The State of Utah provides the identical process as IRS liens for releasing a State tax lien. If you are in the process of trying to settle up a state tax lien I suggest you ask the State tax official to follow the same procedure. The fact that the IRS is willing to do this makes a powerful and persuasive argument that this courtesy is legal, ethical and socially desirable as a matter of policy. Most states will probably honor this very reasonable request when asked in a civil manner ( my home State of Rhode Island will not). You can approach them with your own version of a petition that mimics federal tax form 12277. Make sure the State form that is filed is marked as “withdrawn”, not as released.