Tax season is now over, but that doesn’t mean your tax issues are over as well. You may have been stuck with a large tax bill. If you end up owing taxes to the IRS, they put a lien against you and that will be reflected on your credit report. If a lien is placed on your credit report your score can really go down the tubes, and having a poor credit score can affect many important areas of your life. Having a poor credit score can affect your ability to secure a loan, renting or buying a home, and it can also hurt your chances of finding a job.
Sometimes having a tax lien on your report can actually hurt your ability to pay back your tax debt and the IRS realizes this, so in 2011 the IRS started the “Fresh Start” initiative to help individuals that are burdened with the negative credit impact of a federal tax lien being present on their credit report. Under this program you can ask the IRS to remove the lien from your credit report by completing ‘Form 12277’ and submitting that form with any necessary documentation related to your request. It’s not necessarily a quick or easy process, but it’s something worth doing if you want to improve your credit. The lien itself won’t be removed, meaning, if you’ll still have to pay your taxes, but the negative reporting will be removed. One key thing to remember is that if you have multiple liens you’ll have to complete a separate 12277 form for each lien.
There are four different criteria that you must fall under to have a lien notice removed from your credit report:
- The IRS did not have their paperwork in order before they filled the notice. There are many different situations where this could be the case. This could mean the notice was filled prematurely by the IRS. Possibly the lien was initially released, but the notice was still placed on your credit report or the notice could have also been placed in error.
- You entered into an acceptable installment agreement with the IRS. The IRS has payment plans they offer to help pay your tax debt over time. If you’ve been making payments or you’ve completed your payment plan then you could ask the lien be removed from you report.
- Removing the lien would help facilitate a faster and easier resolution. As discussed above, having poor credit can prevent you from getting certain jobs and you it may also prevent you from getting certain licenses necessary for work. For this option, you’d have to show removing a lien would help you get a job so you can pay your tax debt.
- Removing the lien would be in the best interest of the government and you. Commonly, you’ll work with an IRS taxpayer advocate who can evaluate your situation and see if your situation fits this particular criteria. One example of this would be if a person would like to refinance their home and cash out a portion of the equity they have in their home to pay the tax debt. The lien would prevent them from doing this so they would need to show they could get the loan if the lien notice was removed.
It’s imperative that you properly complete the 12277 form as missed signatures and other information can cause significant delays. The IRS has 90 days to respond to your application, but you can call Central Lien Operations at 1-800-913-6050 to check the status of your application. An important thing to note, if you’d like the credit bureaus or other 3rd parties to be notified of the lien release then you need to provide the names and addresses of those you wish to be notified. Just because the IRS approves your application it, doesn’t mean they will automatically notify the credit bureaus.
What if the IRS declines or rejects my application?
If the IRS declines your application then it’s imperative that you contact an IRS tax advisor to discuss your lien and your options. You can speak with them about filing an appeal as well as any issues that might have come up with your application.
If you have federal tax liens and they are hurting your credit then it’s strongly recommended that you look into getting them removed. The IRS has provided you a path to better credit, so why not take it?
Here is an informative video about removing a tax lien notice: http://www.irsvideos.gov/Individual/IRSLiens/LienNoticeWithdrawal
Tax Payer Advocate Service: http://www.irs.gov/Advocate/Taxpayer-Advocate-Service-6
Tax Payer Advocate Intake Phone: 1–877–777–4778 or TTY/TTD 1-800-829-4059.
Link to Form 12277: http://www.irs.gov/pub/irs-pdf/f12277.pdf
You can also call the IRS customer service line at 1-800-829-1040 if you have any questions or need help completing your form.
Author Landon McKay is a financial counselor at LSS Financial Counseling.
If your credit score is being negatively impacted by tax liens, incorrectly reporting items, or other debts, give us a call at 888-577-2227 or visit our website www.ConquerYourDebt.org to set up a free and confidential appointment with a financial counselor. Meeting with a financial counselor is a great way to regain control of your credit score!