Is it possible to get a tax lien removed? Yes! Is it easy to get a tax lien removed? Unfortunately, no.
What is a federal tax lien?
A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:
- Puts your balance due on the books (assesses your liability);
- Sends you a bill that explains how much you owe (Notice and Demand for Payment); and
- You neglect or refuse to fully pay the debt in time
A new threshold
One of the most beneficial IRS Fresh Start Program Tax Lien improvements is the change to thresholds. The threshold for the IRS filing a lien was bumped from $5,000 to $10,000.
When using a DDIA (Direct Debit Installment Agreement) the threshold for requesting a lien withdrawal has been set at $25,000. For the DDIA, there are a very certain number of people who can fit into the category. If you’ve had a defaulted payment or failed to be in compliance, it’s probably not going to help you. Chances are it’s not going to help the majority of taxpayers, but it can provide some relief to those who meet the criteria.
Technically, the IRS can file a lien for any amount if it’s deemed "warranted". The new thresholds do not preclude the IRS from acting on their own prerogative.
Having a lien withdrawn
You first need to determine if you qualify to request a lien withdrawal. You must:
- Satisfy your tax liability
- Be compliant! This is so important whenever dealing with the IRS. If you aren't compliant your tax problem will not go away.
- Be current
Even if you haven't paid the IRS what you owe, you may still be able to qualify for this program if you meed certain criteria. If you need assistance understanding if you meet those qualifications, contact us for help.
Crud – I don't qualify! Now what?
We have seen Federal Tax liens removed in a personal Chapter 7 Bankruptcy, but typically they will not be (and then you have the problem of a Bankruptcy on your credit report). If you qualify and can get into Currently non-collectible status, or a partial-payment installment agreement, the IRS will file a tax lien as a matter of right.
The most common way to request a removal of a tax lien when you don't qualify for the Fresh Start program is to show that the lien is putting your income-earning ability at risk. If you choose to take that route, be meticulous when providing your information to the IRS. When they review your case, they have to believe beyond a shadow of a doubt that you truly cannot function with this lien on your life.
The other possible way to remove a tax lien is to have an Offer in Compromise accepted and paid. About 2 months after an Offer in Compromise is accepted and paid, the Notice of Federal Tax Lien will automatically be released. While a Release is not as favorable as a Withdrawal (A Lien withdrawal erases the existence of a tax lien on your credit report, a release shows there was a debt and it is paid in full), it's better than nothing.
Great – I qualify! Now what?
Next, an IRS form needs to be filled out. IRS Form 12277, 'Application for Withdrawal'. This is an area where we've seen the slow moving nature of the IRS kick in. Their approval could take a while. There is no specific time frame that they are required to reply to you, and we've seen cases where the paperwork will sit on a desk while the IRS agent works on more 'pressing' cases. It's worth the time to follow up with the IRS once submitted.
How do I know if my lien withdrawal was approved?
If the IRS approves the request, they file Form 10916(c), 'Withdrawal of Filed Notice of Federal Tax Lien' in the recording office where the original 'Notice of Federal Tax Lien' was filed. They also provide a copy of the documents for your records.
