Bye-Bye Federal Tax Liens
The Trouble with Tax Liens
Federal tax liens can depress your FICO scores and keep you from getting approved for most types of loans. Recently, the IRS announced a number of policy changes that allow taxpayers to remove federal tax liens from their credit reports, and, as they put it, “get a fresh start”. These changes should be very exciting for anyone with IRS trouble who is attempting credit repair.
New Policies
Prior to these policy changes, the IRS would release a tax lien when it was paid in full, but would continue to report on your credit report for seven years from the payment date. Now the IRS will withdraw tax liens (and notify the credit bureaus to cease reporting) upon request under the following circumstances:
- The lien is paid in full
- The taxpayer enters into a Direct Debt Installment Agreement
- The taxpayer converts a regular installment agreement into a Direct Debit Installment Agreement
Liens in Direct Debit Installment Agreements will be withdrawn on request – after a probationary period demonstrating the ability to honor the payment arrangement.
You Must Ask
The IRS does not withdraw liens automatically. Here is the form that must be used to apply for withdrawal of tax lien: http://www.irs.gov/pub/irs-pdf/f12277.pdf
Future Changes
Another point of interest, currently the IRS will automatically file a lien when the amount owned is greater than $5,000. The IRS now plans to increase this threshold to $10,000 sometime in 2012.
- Credit Repair
- Mortgage Preparation
- Tax Liens
19 Responses
I never heard this and it is a revelation. I have 2 paid tax liens on my credit report. I’m not convinced that they are doing anything awful to my credit score, but I find them annoying and slightly embarrassing when I know that someone is running my credit report. I’m not a customer of your credit repair company, but I thank you for this tidbit of information. I have already clicked the link and printed my form.
Hi Joe, I’m glad you found us! We wish you the best with your efforts!
I also never heard this. I am in a payment plan for 2 years already and never was late. I can easily switch to a direct debit way of paying and get this off of my credit report!! I am a customer of yours. You guys are awesome. Maybe you should send an email or newsletter or something to let everyone know.
Hi Tina, Thank you for the nice words! We will consider your suggestion.
Very cool
Hi guys. I’m new to the Sky Blue credit repair program and wonder how much a tax lien hurts your credit score?
Hi Quentin, A tax lien can have a major impact on your score, not to mention your ability to get a mortgage, etc. The numeric score-hit you will get depends on the overall content of your credit report. Generally, the more established your credit is, both in quantity and age, the less of an impact anything will have, and vise versa. But to give you an answer you can sink your teeth into, you can easily lose 100 points to a tax lien. Getting an IRS lien withdrawn can make or break your ability to use your credit. We know that it can be nerve-wracking to contact the IRS, but if you have a lien and have not yet started repayment, you should go with direct debit and get the darn thing off your report! If you have questions about your own case, please call in and speak with your advisor.
Dear Sky Blue, I’m about to sign up and I do have a IRS tax lien for $12,000. I can afford to set up a payment plan. I’d like to buy a house in 2012. Can you help me with the paperwork to get the lien removed?
Hi Tony, That sounds great. And you are on the right track; if you want to buy a home it is essential that you get the tax lien off your credit report. We look forward to working with you and having you as a member of Sky Blue Credit Repair! We cannot however do the IRS paperwork for you. But it is easy, once you have entered into your direct debit payment plan, go to the link we provided in the post above and follow the directions.
I can’t believe that I never heard of this before. I thought that home ownership was years away for me, but this makes it possible really soon. I’m going to stop flirting with credit repair and get started with you guys now
And I’m calling the IRS 
Hi Amanda, That’s the spirit!
Does this apply to STATE Tax Liens also?
Hi Liza, great question! And we wish it were so – but unfortunately, it applies to federal tax liens only.
do you have any recommendations on how to remove STATE tax liens from one’s credit report? I have one released (CA) and one current (MD).
I was unaware of the current lein (from 2002/ 2003 time period) and am in the process of re-filing state income taxes for this time period.
Are state tax liens as harmful as Federal ones in securing home loans?
Hi Joy! Thanks for the question. There is good news and bad news. The good news is that your released California tax lien has only a negligible (if any) negative impact on your FICO score. The bad news is that there is nothing you can do to reduce the impact of an outstanding state tax lien on your FICO score – other than paying it! Once it is released it will cease to hurt your score, and it will have no bearing on your ability to get a mortgage.
As for the impact of an outstanding state tax lien on your ability to get a mortgage, please check with a mortgage originator for the specifics, but generally, tax liens (Federal and State) need to be resolved prior to closing on a mortgage. It may be possible to get a mortgage if you have entered into a payment plan and can document some history of making the payments, but again that is a detail for your mortgage originator. On another front, if you are not already working with a CPA or tax attorney on your re-filing it is worth considering! A tax professional may be able to save you a bundle. Good luck!
I have had a CA state tax lien haunting our credit for years. It is debilitating, credit wise. Do you have any wisdom concerning State as opposed to Federal tax liens.
We do not owe it. They have no return to prove it or w2′s, 1099′s or other evidence to the contrary, yet, try as i may, because the state filed a lien with my husbands ss#, the credit bureau says it will remain. Maybe every time i try again to have it removed, the activity renews it’s life>??? Can that be true as well.
Hi Sherrie, I wish I had better news – but state tax liens (accurate or not) can continue to report as long as they are in effect, and once paid they can report for seven years. Ouch. There may be no credit repair angle on your CA tax lien, but based on the potentially costly impact the lien may have on your ability to obtain favorable financing it may be worth contacting a tax professional – a tax attorney or CPA may be able to get the lien removed. And PS – your disputes are not prolonging the life of the lien on your credit report. Best Wishes!
Thanks so much for your prompt response. i did not expect to hear back so soon.
I wasn’t thinking that my disputes were prolonging the life.. it’s contacting the franchise tax board myself that i fear may have done so.
Hi Sherrie, if it helps… Unless your communication with the FTB was right at the cusp of the 10 year time frame, you can rest easy that you did not cause an extension. Per California Statute, tax liens are automatically set to remain in effect for 10 years, and can be renewed for another 10 years, but the FTB would not be able to initiate a renewal unless the 10 years was about to expire (they cannot just re-start the clock at some random interval). Best Wishes!
We’ve gotten good feedback about this free tax-advice resource from Turbo-Tax (you do not have to be a Turbo-Tax user to join). I understand that the forum is manned by Federal and State tax experts that may be worth chatting with: https://ttlc.intuit.com/