Removing a Federal Tax Lien From Your Credit Report

Under certain circumstances you can get a paid IRS tax lien off your credit report sooner than seven years.

Federal tax liens can remain on your credit report for many years. Even if you pay the lien in full, the credit reporting agencies, like Experian, Equifax, and TransUnion, can include the lien on your report for seven years after the payoff date.

However, in 2011 the IRS provided a new program that benefits taxpayers who are able to either pay off the lien in full or make payments in an IRS Direct Debit Installment Agreement. If you can do one of these two things and meet other criteria, you can get the tax lien off your report much sooner than seven years.

How Long Can Tax Liens Remain on Your Credit Report?

When including information on your credit report, the credit reporting agencies (CRAs) must follow the laws set forth in the Fair Credit Reporting Act (FCRA). Here’s what the FCRA has to say about federal tax liens.

Reporting of Unpaid Federal Tax Liens: Potentially Forever

The FCRA does not restrict the CRAs from reporting federal tax liens on your credit report. This means that theoretically, a credit reporting agency could report an unpaid tax lien forever. However, many experts say that most credit reporting agencies will drop the tax lien from your credit report after about 15 years.

Reporting of Paid Tax Liens: Seven Years

Even if you pay the tax lien in full you are not in the clear. A CRA may include a federal tax lien on your credit report for seven years from the date of payoff. 15 U.S.C. § 1681c(a)(3).

Special Treatment for “Withdrawn” Tax Liens

The IRS has a process by which it can “withdraw” a Notice of Federal Tax Lien. If the IRS does this, it’s as if the Notice was never filed. In 2011, the IRS expanded the situations in which a taxpayer can get a tax lien withdrawn.

Along with the new 2011 procedures came the credit reporting industry’s announcement that it would remove a tax lien from a credit report if the IRS had withdrawn it. Voila! This provides you with a method of getting a federal tax lien off your credit report in much less than seven years. But you must meet certain criteria in order for the IRS to withdraw your tax lien.

How to Qualify for an IRS Tax Lien Withdrawal

In order to get the IRs to withdraw your tax lien, you must fit one of the two following scenarios:

You Paid Your Tax Lien in Full

The IRS will withdraw its Notice of Federal Tax Lien if:

  • you paid the lien in full
  • you have complied with all tax filings within the last three years, and
  • you are current on estimated tax payments and federal tax deposits (if applicable).

Entering into an agreement to pay just part of the lien (for example, through an Offer in Compromise) will get the IRS to “release” the lien (assuming you meet your obligations under the agreement), but it’s not enough to get the lien withdrawn since you are not paying the debt in full.

You Entered Into a Direct Debit Installment Agreement With the IRS

You can get the IRS to withdraw the tax lien without paying it all off right away. If you enter into an agreement to repay the entire lien through direct debits, you may qualify for the withdrawal of the Notice after just three payments. Here are the criteria you must meet under this scenario:

  • you owe $25,000 or less
  • you enter into a Direct Debit installment Agreement in which you pay the tax lien in full within 60 months or before the statute of limitations expires, whichever is earlier (if you are currently in a regular installment agreement, you can convert it to a Direct Debit Installment Agreement)
  • you are in compliance with other IRS filing and payment requirements
  • you have made three direct debit payments in a row, and
  • you haven’t defaulted on your current or any past Direct Debit Installment Agreements.

You can learn more about these criteria in the IRS 2011 announcement about the Fresh Start program.

Requesting a Tax Lien Withdrawal From the IRS

Tax lien withdrawal doesn’t happen automatically. If you meet the above criteria, you must request a withdrawal from the IRS. You do so by completing and sending to the IRS Form 12277, Application for Withdrawal of Notice of Federal Tax Lien. If the IRS grants your request, it will record Form 109169(c) (Withdrawal of Filed Notice of Federal Tax Lien) with the county recording office and send you a copy.

Getting the Tax Lien Removed From Your Credit Report After the Withdrawal

There’s one more step in the process. The credit reporting agencies are required to periodically search public records and report accurate information on your report (in which case they should pick up on your tax lien withdrawal). But it doesn’t make sense to rely on (or wait for) them to do this.

You should alert the CRAs of your tax lien withdrawal. Do this by following the normal process for disputing an item on your credit report. With the dispute paperwork, send a copy of the IRS Form 109169(c) (Withdrawal of Filed Notice of Federal Tax Lien). (To learn how to dispute an item on your credit report, see How to Correct Errors on Your Credit Report.)

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