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.
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 any of 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Liens being repaid via a Direct Debit Installment Agreement will be withdrawn by the IRS on request – after a probationary period demonstrating the ability to honor the payment arrangement.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 (Form 12277) that must be used to apply for withdrawal of tax lien: http://www.irs.gov/pub/irs-pdf/f12277.pdf
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.