Tax Liens

It occurs as a result of the government’s legal claim against your property until an unpaid tax debt is satisfied. The government can legally take away your property to satisfy an unpaid tax debt. Tax liens can come as a surprise to many as they may not even be aware of the tax debt. For instance, oftentimes when a debt is forgiven the creditor will file a 1099-C form which you will be required to then claim that forgiven amount as income on your taxes.

For instance

if you owe $1000 on a credit card debt and settle the debt for $200, you may receive a 1099-C requiring you to pay taxes on the $800 that was forgiven. Neglecting to pay these types of taxes is often the cause of tax liens. Failure to pay ordinary income tax is another common way that tax liens end up haunting your credit report and score. Failure by your employer to properly pay payroll taxes may also result in tax liens.

One bit of positive news is that as of July 1, 2017, Experian, Equifax, and Transunion announced that they will be removing tax liens and judgments that do not meet basic reporting criteria — name, mailing address, social security number, and birthdate. Many tax liens and judgments have already been eliminated from consumer credit reports!

The IRS – To qualify Tax Liens

Another bit of good news is the IRS has something called the “Fresh Start” initiative in which you can qualify to have a lien removed from your credit report. Once you have established a repayment schedule for your tax debt or once the debt has been satisfied.

In order to qualify to have it removed from your credit report once the debt has been satisfied, you must meet certain criteria. You must have properly followed the law and filed all appropriate business, individual, and information returns over the past 3 years. You are current on all estimated payments and IRS federal tax payments.

In order to qualify for the Fresh Start initiative while still making payments, you must meet even more criteria, but it is possible; that total debt must be under $25,000.
You have set up the direct-debit installment program agreeing to pay off the debt within 60 months or less.
You have made at least 3 consecutive payments and made all payments as agreed
Have never defaulted on your direct debit program.

If you feel you meet either of these criteria you can proceed with attempting to have your tax liens expunged from your report by:

  1. If you do not have it, request a copy of IRS Form 668(Z), Release of Federal Tax Lien. You should have received this after satisfying your lien or being granted a waiver of any unpaid balance.
  2. Gather your original paperwork regarding the Notice of Federal Tax Lien. Form 668(Y).
  3. Fill out Form 12277. Application for Withdrawal of Filed Form 668(Y).
  4. Now that you have gathered and/or filled out IRS Forms 668(Z), 668(Y), and 12277. You must submit all three to the IRS. Include a detailed explanation stating that you are requesting the lien be withdrawn and why.
  5. Remember the IRS does not move quickly but you should eventually receive IRS Form 10916(c). Withdrawal of Filed Notice of Federal Tax Lien.
  6. Call the IRS to check on the status of your request if nothing is received after 3 weeks.
  7. Once you have Form 10916(c), promptly send it to Experian, Equifax, and Transunion.

RELATED ARTICLESMORE FROM AUTHOR