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How to Remove Tax Liens from your Credit Report

September 5, 2016

How to Remove Your Tax Liens from your Credit Report

Tax lien is the right of the IRS or state or country to take possession of the property in-case of negligence in paying property tax or income tax. It is filed in-order to force the tax-payer to pay his/her outstanding tax amount. However, when filed it is also recorded in the public record and then added to the consumer credit report. It can be viewed by anyone including credit reporting agencies.

Tax lien has derogatory impact on the credit score. Consumers with no other credit issues could lose 100 points with tax lien. Being one of the most difficult credit issues to overcome, it can stay on the credit report for 7 years and in certain situation, forever! Unlike other collection accounts, it is not mandatory by the law to remove it from credit report after 7 years. According to Fair Credit Reporting Act (FCRA), the tax lien may be removed from credit report, 7 years after the date of payment of outstanding tax amount.

So, How do you remove tax liens from your Credit Report?

The good news is that It is possible for consumers to remove the tax liens prior to 7 years, as long as it’s paid. The ‘Fresh Start Initiative’ from IRS has released new policy to handle tax liens. Full payment of outstanding tax amount will facilitate taxpayers to withdraw lien from credit history, upon request. Some eligibility criteria facilitates taxpayers to withdraw after a minimum of 3 payments towards the payment agreement. However, it should be noted that removing tax liens from credit history is not always possible, but customers can try a number of steps to get the lien removed.

Do You Qualify? You may request to withdraw tax lien for credit report if:

  • You have paid the full amount you owe and lien has been released
  • For past three years, you are in compliance with providing your individual, business returns
  • You are up-to-date on your tax payment and deposits
  • You owe $25,000 or less and have agreed on the direct debit installment payment toIRS, from your back account automatically.

You could ask tax professionals to learn more about the eligibility criteria. Pay the Outstanding Tax Amount:

  • After full payment of you due, you may receive the IRS Form 668(Z) for ‘Release of Federal Tax Lien’
  • Fill out IRS Form 12277 for ‘Application of Withdrawal’
  • Submit ‘Notice of Federal Tax Lien’ IRS Form 668(Y) along with above two form to IRS and provide explanation of why you want your tax lien to be withdrawn.
  • You may receive the IRS Form 10916(c) for ‘Withdrawal of Filed Notice of Federal Tax Lien’. It is also filed in the recording office where the original NFTL was filled.

You may produce these documents to the credit reporting agencies or ask IRS to to notify them.

Summary: How to remove tax liens from your credit report

Above all, send a goodwill letter to all three credit bureaus, explaining your full payment of outstanding money. Give honest reason why you defaulted. Address the issues behind tax lien and steps you took to pay what you owe. Moreover, be patient! The complete process may take months to reflect on your credit report.

Used car dealer located in Salt Lake City and Ogden specializing in helping those individuals with less than perfect credit get into a vehicle and car loan.


Here's How To Get Tax Liens Scrubbed Off Your Credit Report

Remove paid state tax lien from credit report Flickr/David Goehring

On February 24th the IRS announced new policies regarding the collection of unpaid taxes and liens. Specifically, if the tax payer pays their liens “in full” the IRS will “withdraw” them. What does this mean for consumers’ credit reports?В

Simply put, tax liens are now the only derogatory item on a credit report that will be removed once it has been paid, as long as you play your cards right.

Do you have an IRS tax lien on your 2013 credit report?В Visit hereВ to see your full report online now.

An unpaid tax lien can remain on a credit file indefinitely per the Fair Credit Reporting Act. In the old days, pre February 24th, even when paid the lien remained on file for an additional 7 years and was only shown as “released.” And, a released tax lien is just as bad for your credit as an unpaid tax lien. This new IRS policy suggests that if you pay your liens in full they will be removed from your credit files much sooner, and this was confirmed by all three credit reporting agencies and their trade organization, the Consumer Data Industry Association (CDIA). According to Norm Magnuson, Vice President of Public Affairs for the CDIA, “I’ve confirmed that all three credit reporting agencies remove withdrawn IRS tax liens.”

Tax liens are one of FICO’s “Seven Deadlies” and can severely damage your FICO scores for years. The new IRS policy offers hope to consumers who want to clean up their credit sooner rather than later. However, some don’t agree that this is a good idea. IRS liens, which can remain on a credit report longer than anything else, are now the only derogatory item that could be removed once paid. This “opportunity” doesn’t apply to any other derogatory debts such as collections, foreclosures, repossessions or defaulted credit cards. Ironically, this is the type of “pay for deletion” scenario that is generally frowned upon by the credit reporting industry.

The question some are asking, and it’s a legitimate concern, is whether or not the removal of a tax lien waters down the value of the credit report. If tax liens are indicative of elevated credit risk, and they are, then removing them would mask the consumers true credit risk. Lenders could be duped into granting credit for someone they may have considered too risky if they had seen the lien. Still, “most people with a tax lien have other negative history and that other negative history will continue to weigh down their score”, according to FICO spokesperson Craig Watts.

The new IRS policy doesn’t apply to tax burden settlements. The new IRS rules don’t offer a withdrawal if the lien is only settled, “Full payment” is required, according to the IRS website. So, if you can’t afford to pay off your lien in full you’ll still eventually have a released lien on your credit files for 7 years from the date it was settled.

If the lien is the only negative item on your credit reports, and if the lien is fairly recent, this new IRS policy can result in a monumental change in a consumer’s score. In fact, my estimates show a potential 100 to 200 point increase, under some circumstances. At the very least a consumer’s score should improve. The amount of the improvement will be determined by the age of the lien and what other negative items, if any, are on the consumer’s reports.

Withdrawal of the lien is only at the consumer’s request. This is important as the process to have the lien removed isn’t “autopilot.” In fact, if consumers are unaware of the new IRS policy they might never ask to have the lien listed as “withdrawn”, and thus they’d have 7 more years of credit reporting. The IRS announcement is clear on that matter, “Liens will now be withdrawn once full payment of taxes is made if the taxpayer requests it.” Consumers with withdrawn liens should notify the credit reporting agencies of the new status and ask them to be removed.

Finally, approved payment plans for larger liens will also result in a withdrawal perhaps even before the full payment has been submitted. In these cases the credit reporting could be stopped even before a full lien balance has been exhausted.В The IRS was in a good mood yesterday.

Do you have an IRS tax lien on your 2013 credit report?В Visit hereВ to see your full report online now.


2 Ways To Remove A Tax Lien Off Your Credit

Tax liens can have a devastating impact on your life. They are reported to the credit bureaus and block you from obtaining credit and selling your home. Tax liens may even prevent you from obtaining gainful employment. Adding insult to injury, they may remain on your credit report indefinitely. So what are your options to remove them off your credit report?

The 2 ways to remove a tax lien from you credit include:

  1. Have the IRS withdraw the lien
  2. Pay off the lien and wait 7 years for the credit bureaus to stop reporting it

Before we go further, we need to go over a couple of things on “Lien Status”.

To understand how to remove a lien from your credit report, we must first get familiar with 3 lien statuses. They include:

  • No status – meaning there is a lien on you and the credit bureaus will report it
  • Paid or Released – indicating the lien is no longer on you and the credit bureaus will report it
  • Withdrawn – this isn’t exactly a status shown on your credit report. In this case, the lien will not be reported by the credit bureaus (in theory only),

“No status” and “Paid or Released” lien statuses are the two that will remain on your credit report and in some circumstances, indefinitely. A “Withdrawn” status, isn’t really a status at all. When a lien is withdrawn, it should remove any evidence of a lien from your credit report.

Removing A Tax Lien From Your Credit Report

Credit bureaus are required by law to remove most negative items on your credit, like a bankruptcy, after 7 years. However, in tax lien cases, those laws do not apply. They may remain on your credit report past the 7 year mark or indefinitely.

A way to remove this lien from your credit report is, to get it withdrawn. If your taxes were filed incorrectly and you didn’t have a tax debt to being with, you can amend your tax return. Consequently, the IRS will withdraw the tax lien from your credit report. Sometimes liens are filed by mistake, which may also be withdrawn by contacting the IRS.

I highly recommend getting back tax professional to take look at the tax return in question, to see if they can lower tax debt to zero or less. You might even find out the IRS owes you, and would provide the opportunity to increase your credit score. (Ask A PRO)

This lien status in many cases cannot be removed. They will stay on your credit report 7 years past the date the lien was paid or, released. In this circumstance, you want to make sure you note your calendar to review your credit report after the 7 years is up. Also, it wouldn’t hurt to try to dispute the lien sooner, if by chance the credit bureaus decide to remove it sooner.

As discussed earlier, if a lien is withdrawn, it should not be reflected on your credit report. If, the credit bureaus are still reporting it on your credit, you may dispute it online or with a letter. I would probably send a copy of any notices proving the release if you send your dispute by mail.

As always, if you have any questions or comments. Please feel free to leave them below. I will always try and find the best answers possibly for you back tax issues.


How to Get a State Tax Lien Off My Credit Reports?

I received the following email last night from a Twitter follower, @johnulzheimer. “Hi John, Today I was notified by my credit monitoring service that the credit bureaus picked up a county-recorded State Tax Lien placed on me in 2/13. I had an outstanding $1,750 for 2012. I had no idea it was still outstanding. I had moved residences last December and received no notification via mail or via phone.

Do you have a state tax lien that needs to be removed? Click here to see your updated credit report and score.

The only reason I even knew about the Lien/Levy was because in 2/13, my bank account was emptied. When I called to report what I thought was fraud, they informed me that the state took it. I called the state immediately and paid them the outstanding owed tax the next day. The lien was immediately released (emphasis added because it’s important), and I was told “nothing was being reported to the credit bureaus.” I thought the whole matter was closed.

I was wrong. Apparently the lien WAS filed with the county and it just showed up at the bureaus (literally today 6/4/13). And now I have this horrific mark on my credit bureau reports and my score had dropped through the floor simply because I had no idea I owed them money. And so little. This is so frustrating. What can I do about getting this withdrawn from the reports?”

ANSWER: The IRS and state level tax authorities don’t report liens to the credit bureaus so what they told you about not reporting it is correct. The reason they show up on credit reports is because they are public records and the credit bureaus go get them.

Do you have a state tax lien that needs to be removed? Click here to see your updated credit report and score.

If it has been released the bureaus won’t remove it. It has to be “withdrawn.” You’ll have to go back to the state and ask them if they have a process for withdrawing tax liens that are paid in full, rather than just releasing them. Withdrawn liens will be removed from credit reports by the bureaus. They don’t maintain withdrawn liens.