Not only are your tax problems with the IRS stressful, but they can impact multiple areas of your financial life.  When you owe the IRS there is a “silent” tax lien that automatically attaches to a taxpayer when the IRS has assessed the tax against you, notified you of the tax that you owe and you have failed to pay it.  It is referred to as “silent” because there isn’t a form that is filed anywhere, it just happens by operation of law.  The lien protects the government’s interest in all your property, including real estate, personal property and financial assets.  A lien is different from a levy because a levy is where the IRS physically takes your property (by wage garnishment, taking all of the money from your bank account, or selling your property).

The typical threshold for the filing of a formal Notice of Federal Tax Lien is at $10,000.00 owed in taxes, but depending on the circumstances, it could be filed when you owe less than that.  A Notice of Federal Tax Lien is filed in the register of deed’s office for the county where the taxpayer lives.  That means your tax debt has now become a public record and this will also be included in your credit report so your credit score will drop having a negative impact on your ability to borrow.

The Notice of Federal Tax Lien has an automatic release provision built into it so that when the date listed on the form has passed usually ten years from the date of assessment of the tax, the lien is automatically released.  But, what if you have gone through the offer in compromise process and settled your tax debt, or you have been making monthly payments for a few years and were able to pay off your tax debt?

Since you paid off your tax debt prior to the automatic release date on the lien, the IRS will issue a release of the tax lien that is also filed with the register of deeds and becomes a public record.  That’s great that the tax debt is now gone, but the big problem is that it doesn’t come off of your credit report automatically.  While they notify the county, the IRS does not notify the credit bureaus.

Here’s what you do.  Head over to IRS.gov and download Form 12277.  There is a link in the show notes at 6minutelegal.com/tpt006.  Begin completing the form.  The first eight questions will be your name and contact information.  Question 9 will begin asking for specific information about the lien that has been filed.  You will need a copy of the lien that has been filed so you can refer to the lien number and date and location of filing.  Question 10 will ask the current status of the lien.  If you have received a notice of release of federal tax lien, you can check the released box.  If you haven’t you should check “open” or “unknown.”  Since you have already paid your tax in full, the issuance of a release should be automatic by the IRS, but often it is not.   In box 11, I would suggest checking the last box for “in the best interest of the tax payer and the government.”  And, in box 12, you can detail the reason for your request which is essentially that your tax debt has been paid in full and you desire to have the lien withdrawn.  You can also refer to the IRS Fresh Start Program that authorizes the filing of a lien release when the tax has been paid in full.  Finally, you will sign and date Form 12277 at the bottom.

I hear you saying, “That is the formal request to the IRS to release the lien, but what about your credit?“  Paragraph 4 of the instructions for this form state, “At your request, we will notify other interested parties of the withdrawal notice. Your request must be in writing and provide the names and addresses of the credit reporting agencies, financial institutions, and/or creditors that you want notified.”  So, along with your request, you should mail a separate letter to the IRS with this request:

 Sample Addendum to IRS Form 12277

(YOUR NAME)
(YOUR SOCIAL SECURITY NUMBER)
(ADDENDUM TO FORM 12277)

Pursuant to your instructions, I hereby request withdrawal of all Federal Tax Liens against me.  Please notify the following agencies of the withdrawal:

Experian
P.O. Box 9595
Allen, TX 75013

Equifax
PO Box 740241
Atlanta, GA 30374-0241

Trans Union
PO Box 1000
Chester, PA 19022

Now, when the IRS withdraws the lien, they will automatically notify the credit bureaus of this withdrawal as well.  I have heard of credit scores being increased by over 100 points by the removal of a lien.

Forms we discussed:

IRS Form 12277

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Questions?

Let’s continue this conversation in the comment section below. What questions do you have about dealing with IRS collections?