What is a tax lien?
When you have an unpaid tax bill with the IRS, a tax lien can be filed in an effort to ensure that you pay your outstanding tax obligations to the federal government. Liens exist to protect the right of the government or a lender by giving them a right or claim to your personal property in the event that you decide not to pay your taxes or loan. When a tax lien is filed, it is recorded as a public record which can be viewed and reported by credit agencies. Tax liens can be very tricky and cumbersome items to deal with your credit since you have to loop in government agencies that work on their own timeline.
How to remove a federal tax lien through the IRS Fresh Start program
Luckily the IRS “Fresh Start” program is a new initiative implemented by the federal government that makes it easier for individuals to request a withdrawal of a FEDERAL tax lien from their personal credit report. The program allows for the tax lien to be withdrawn from someone’s personal credit report even when balances remain unpaid as long as they are under a certain dollar amount and in good standing with the IRS by either having paid off the tax lien or in a payment plan.
IRS Fresh Start program criteria
To qualify for this program after your tax lien is paid off and released, here is the criteria to permanently remove the tax lien from your credit report:
- You have been in compliance with the law for the past 3 years filing individual, business, and information returns.
- You are current on all estimated tax payments and federal tax deposits.
To qualify for this program while the lien is still being paid:
- You owe no more than $50,000 in taxes.
- The Direct Debit Installment Agreement must be on track to pay off the entire amount owed within 72 months; or before the Collection Statue expires, whichever is earlier.
- You are fully compliant with all other payment and filing requirements.
- You have made at least 3 consecutive payments in the direct debit payment plan.
- You have never defaulted on a Direct Debit Installment agreement with the IRS.
If you are eligible for the Fresh Start program, the next steps are as follows:
- After paying off your balance in full or being granted a waiver for your unpaid balance, you should receive IRS Form 668(z). Release of Federal Tax Lien
- Find your original IRS Form 668(Y), Notice of Federal Tax Lien
- Fill out IRS Form 12277, Application for Withdrawal of Filed Form 668(Y).
- Submit all 3 of the above documents to the IRS office assigned to your account, along with an explanation of why you are requesting the lien to be withdrawn.
- After some time for processing, you should receive IRS form 10916(c), Withdrawal of Filed Notice of Federal Tax Lien.
- Mail IRS Form 10916(c) along with accompanying letter to all 3 Credit Bureaus to remove liens from personal credit report.
CREDIT BUREAU MAILING ADDRESSES
Equifax Information Services, LLC
Experian National Consumer Assistance Center
Removing tax liens from your credit report is highly advisable as tax liens weight in very negatively and could be preventing you from reaching acceptable credit scores for lending. While someone could theoretically get financing even with a tax lien, it is certain that this financing will come at a steeper price (higher interest, shorter terms) to hedge the risk that a lender might have working and investing in that individual. This is why it is imperative to always have excellent credit history.
About Excelsior Growth Fund
Excelsior Growth Fund (EGF) helps businesses in New Jersey, New York and Pennsylvania grow by providing streamlined access to business loans and advisory services. EGF’s signature product, the EGF SmartLoan™, provides up to $100,000 in fast, transparent, and affordable financing through a secure online platform. Larger loans up to $500,000 are also available. EGF is a nonprofit organization and is certified by U.S. Department of Treasury as a Community Development Financial Institution (CDFI). Learn more atwww.excelsiorgrowthfund.org.