Federal Tax Lien Issues

It appears that the credit bureaus may be changing their policies and removing tax liens from credit reports. Often, when a person has a tax issue that is greater than $50,000 (for their federal taxes), the IRS will insist on filing a notice of tax lien in the county that you reside. Having a tax lien on your credit report has a substantial negative impact on your FICO score, so it is great news that it may not be a factor considered by banks in the future. Just to be clear, this change does not impact that you actually have a lien, or that the IRS files a notice of the lien, it only impacts your credit score and credit report.

a8-300x301-299x300As background, the tax lien is public notice that the Internal Revenue Service has a lien against your real and personal property. There are a few methods to remove the lien. The most obvious is to pay the debt owed. Once you full pay the debt, the IRS typically removes the federal tax lien notice in 30 days from the date you paid off the debt.

When you are not in the position to full pay the debt, there are other methods to deal with the tax lien notice. The first is a federal tax lien discharge which removes the tax lien from a specific piece of property. For instance, say you have a piece of real property that is encumbered by a federal tax lien. You may ask the IRS to discharge that lien so you can transfer the property to another party, as part of a sale of that property. It can happen in instances where you have no equity in the property, but it best to get rid of the property since it costs to much to keep. The other method is to ask the IRS to subordinate the lien. The IRS lien subordination does not take the lien off the property, but it does lower its standing in line, so a superior bank loan can be ahead of the lien. This is useful since banks will insist on being first in line for the equity in the property in cases where they lend you money. Lastly, (but not least) is a withdrawal of the federal tax lien. The method may be somewhat moot now that tax liens may be falling off credit reports. This method requires asking the IRS to withdraw the notice of federal tax lien even though the debt was not paid. Often the IRS would agree to this once the tax debt amount went below $25,000 (if you already had a payment plan). This method was a result of the 2011 IRS Fresh Start initiative, and has proven to be very useful. Another variety of the same type of technique, would be when you never had a payment plan before, all your tax returns were filed, and your tax debt in total is less than $50,000. In this case, you would also need to be paying the IRS under  direct debit payment plan, and never had a payment plan before. If you meet all these requirements the IRS would typically not insist on having a tax lien filed.

 

 

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