An IRS lien against your bank account or your paycheck can make it difficult to pay your bills and take care of your daily expenses. The only way to get an IRS lien removed is to work toward tax resolution, unless the lien has been placed in error.
The J Gannon Helstowski Law Firm is experienced in filing lien appeals and getting tax lien withdrawals, and we will work to get the situation resolved as quickly as possible. Here is a quick guide to some of your options for tax lien resolution, and for clearing your credit of lien reports.
If the tax lien against you has been in issued in error, it is possible to challenge the lien and have it removed. Here are some common reasons a tax lien might be removed.
- You have paid the tax debt in full
- The IRS made a mistake in filing the lien – the IRS either had no cause to file, did not allow you to dispute the tax debt amount, or did not follow the correct filing procedures
- The lien is due to an IRS error in processing your return
- The lien was filed while you were in bankruptcy
- You are eligible to request innocent spouse relief or participate in the Fresh Start Initiative
- It has been more than 10 years since the tax debt was incurred, and the statute of limitations on collecting it has run out
You may request a collection due process hearing as soon as you receive the lien notice, but you have limited time to appeal – if the lien has not gone into effect you must file an appeal by the deadline listed in the IRS lien notice. If a lien is already in effect, check the notice date. Beginning five days after the lien was filed, you have 30 days to appeal it.
Withdrawal and Release
Your lien and all evidence of it can be permanently erased through the process of lien withdrawal or lien release.
You may apply for lien withdrawal by making a formal request using IRS form 12277, and if approved, the IRS will issue you a form 10916(c) as proof the tax issue has been resolved. If you begin paying your back taxes by committing to an installment plan, or if you enroll in the Fresh Start Initiative with a direct debit agreement (taxes owed must be $25,000 or less), you will be on your way to lien withdrawal and federal tax debt resolution. Once your debt is satisfied, you can also have it removed from your credit report. Liens placed by state taxing authorities are more difficult to remove, and may remain on your credit report even after the tax in question is paid.
If you make an offer-in-compromise to satisfy your tax debt—meaning the IRS allows you to settle the debt for a lower amount than what you actually owe—a lien release is issued rather than a lien withdrawal. Enrolling in the Fresh Start Initiative or committing to an installment agreement can also get your lien released, usually in 30 days. This type of tax settlement differs from lean withdrawal in one key way: evidence of the lien is allowed to remain on your credit report for as long as a decade. Once you receive a lien release however, you can update your credit report on the change in status.
If you have creditors other than the IRS, subordination is the process by which one or more of those creditors may makes a claim to seize your assets instead of or before IRS does. In other words, a creditor can make an argument that satisfying the debt you owe them should happen first, and the IRS may actually allow it.
This most frequently happens when the IRS places a lien against property that has significant and clearly-defined value, such as your home or a specific business asset. If the IRS finds that it may be easier and quicker to collect from you once the creditor has sold the asset, the agency may subordinate it's interest in order to facilitate that process.
Property Taxes and Liens
Home values are rising rapidly in most of the country, and many homeowners are finding their property tax burden increasing at an alarming rate.
If your property taxes are bundled with your mortgage payment, make sure you get proof from your lender that your annual tax payment has been made on time and in full. If you own your home outright and must make that annual payment yourself, don't put off doing so. Failure to pay property taxes can result in a tax lien against your home, and the longer they go unpaid the more likely that you could lose your home.
If you receive a notice from the IRS regarding unpaid property taxes, respond to it immediately. Work with the IRS to set up an installment agreement if needed and keep paying your monthly amount due on time. Do this even if you disagree with your home's current valuation and intend to dispute it with your city in order to reduce the amount of taxes you owe.
Homeowners that owe property taxes for multiple years should also act quickly to try and resolve the issue, as the more property tax debt you incur and the longer you wait to pay, the greater the chance the IRS will proceed from a property lien to full asset seizure, and sell the home in order to satisfy the tax debt.
Credit Reports and Tax Liens
Having a tax lien on your credit report is never a good thing. It can tarnish your otherwise-good credit and put your FICO® score in freefall, making it very difficult to establish new accounts, buy a home or a car, or make other type of purchases. Insurers, utilities and many other entities that do business with you may also adjust the rates they charge once a tax lien appears in your credit file.
It is therefore important to make sure that tax liens are removed from your credit reports once they have been withdrawn or released. Don't assume the IRS will do it for you, or that credit reporting agencies have accurately updated your credit file to reflect the withdrawal or release. You must take action to ensure your credit reports are correct.
Order your report from the three major credit-reporting agencies once the lien is satisfied, and check each one for accuracy. If the lien still appears on one of the reports, follow that credit-reporting agency's established procedure for disputing the information and requesting changes. If the status of the lien on the report cannot be verified as accurate, the information must be removed from your credit file.