How to remove a Federal Tax Lien from your credit report.

A federal tax lien is the government’s legal claim against your property if you don’t pay a tax debt.  The lien protects the government’s interest in your property and may include real estate, financial assets, and personal property.  While it has serious financial consequences, one oft-forgotten problem is the negative hit to the person’s credit score, dropping it as much as 100 points.  Even once the debt to the IRS is satisfied and the lien withdrawn, it doesn’t mean the negative reporting will disappear from the credit report – unless you proactively file to have it removed. 

If a Federal tax lien will only appear after you neglect or fail to pay a tax obligation.  In all cases, the IRS assesses your liability and then sends you a bill, called a Notice and Demand for Payment, which details what you owe and why.  If you refuse to pay that demand, a federal tax lien is the IRS’ next course of action to try and collect on the debt.  A Levy is the actual action of making good on the lien and seizing property.  A Notice of Federal Tax Lien will be filed as public document to alert all of your creditors that the government has a legal right to your property, and this Notice will also show up on your credit report.

A federal tax lien is filed with your county and can be on your house, bank accounts, assets, or a “super lien” if you are behind on homeowner’s association fees.  The government can attach liens to your bank accounts, vehicles, and even future assets acquired during the duration of the lien.  They also affect all business property and rights to business property, including accounts receivable.  Unlike other debts, bankruptcy isn’t a quick fix , as federal tax liens usually survive the bankruptcy proceedings.

These aren’t empty threats – in the year 2012, the IRS filed over 708000 Notices of Federal Tax Liens.  But it’s important to understand that the IRS wants to work with you – they would rather a taxpayer calls them and negotiate a payment plan, offer and compromise, or some other arrangement than proceed with liens.  Interesting enough, city, municipal, or state tax liens are probably more serious and financially damaging than federal liens. 

There are serveral ways to get rid of your federal tax lien.  The best, of course, is to pay your tax debt in full.  After that, the IRS will release its lien within 30 days.  But you can also sell property and use the funds to free the lien (Discharge of Property) or the IRS may subordinate so other creditors may move ahead of the lien, making it possible for a mortgage or loan to go through. 

When the lien is cleared up and your obligation with the IRS satisfied, you’ll probably still have the issue of the negative reporting and hit to your credit report to contend with.  Here are step-by-step instructions how to do just that.  Please note: the information above is from the IRS.gov website and always seek advice from a tax professional or the IRS before making decisions.  Blue Water Credit can definitely help you with the credit report part of the equation, so contact us any time for more information.

Eligibility Requirements

Requesting a lien withdrawal after the lien has been RELEASED: Generally, eligibility requirements are:

            􏰀  Your tax liability has been satisfied and your lien has been released

            􏰀  You are in compliance for the past three years in filing:

            􏰀  All individual and business returns

            􏰀  All information returns

            􏰀  You are current on your estimated tax payments and federal tax deposits, as applicable.

Requesting a lien withdrawal after entering into a Direct Debit Installment Agreement: Qualifying taxpayers are:

            􏰀  Individuals

            􏰀  Businesses with income tax liability only

            􏰀  Out of business entities with any type of tax debt

Eligibility Requirements are:

            􏰀  The current amount you owe must be $25,000 or less

            􏰀  If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting the lien withdrawal 
to be eligible

            􏰀  Your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the 
Collection Statute expires, whichever is earlier

            􏰀  You must be in full compliance with other filing and payment requirements

            􏰀  You must have made three consecutive direct debit payments

            􏰀  You cannot have previously received a lien withdrawal for the same taxes unless the withdrawal was for an 
improper filing of the lien

            􏰀  You cannot have defaulted on your current, or any previous, direct debit installment agreement

1. You need to fill out the following form:
http://www.irs.gov/pub/irs-pdf/f12277.pdf
Instructions are listed on page two of Form 12277 and there is also an example on the following page.

2. Mail in your form to the IRS. * We recommend using registered mail or something that you can track online when mailing in your form.

County	Address	Fax Number
California Imperial, Inyo, Orange, Riverside, San Bernardino, San Diego Counties	24000 Avila Rd. M/S 5905 Laguna Niguel, CA 92677	949-389-5004
Fresno, Kern, Kings, Los Angeles, Santa Barbara, San Luis Obispo, Tulare, and Ventura Counties	300 N. Los Angeles St., Stop 5021 Los Angeles, CA 90012	213-576-4401
All California Counties not listed above	1301 Clay St. Ste. 1400S Oakland, CA 94612	510-637-2500