Photo by Lip Kee on Flickr.com
Updated January 2016
Okay, so you owe money to the IRS and haven’t paid yet. You get a notice in the mail saying that the IRS has slapped a lien on you (the lovely form 668(Y) Notice of Federal Tax Lien). So what exactly does that mean?
A lien means that the IRS is claiming first dibs on your money if you sell something—like a house or a car. A lien is a legal document that goes through the courts. Your creditors; the mortgage company or the bank holding your car loan are publicly notified that you owe the IRS money.
Let’s say you owe the IRS $20,000 and the IRS places a lien for your tax debt and you sell your home. The IRS is in line to get its money before you get any of the profit.
The lien also goes on your credit report. If you’re trying to buy a new home or even get a credit card, the IRS lien may prevent you from obtaining credit.
How bad does your tax debt have to be before the IRS files a lien? It used to be that the IRS would file a lien once you owed over $5,000, but starting in February of 2011, they raised it to $10,000. If the IRS issued a lien on you under the old rules, they won’t withdraw it just because of the rule change.
So how do I get the IRS to withdraw a lien? Well, paying the tax is the most effective way to remove a lien.
What if I don’t have enough money to pay the tax? That’s harder, but not impossible. You’ll need to be in a payment agreement, but not just any payment agreement—you’ll have to have a “Direct Debit Installment Agreement” if you want to have the lien removed. Direct debit is where you give the IRS permission to take the money directly out of your checking account every month (as opposed to mailing them a check or you paying them online.)
If you want your lien removed, you’ll also have to meet some other eligibility requirements.
· First, the amount you owe must be $50,000 or less. If you owe more than that, you can’t apply to have your lien withdrawn until you’ve paid the debt down to that amount.
· Also, your Direct Debit Installment Agreement monthly amount must be large enough that you can pay off the full amount of your tax debt within 6 years. For example, if you owe $20,000, you’d take the $20,000 and divide by 72 months. You wouldn’t be able to release your lien for less than $278 per month.
· Don’t apply for a lien release until you’ve made at least three consecutive direct debit payments.
· You can’t have already gotten a lien withdrawal for the same taxes, meaning that if you filed for a withdrawal before and then screwed up later, you’re not getting it withdrawn this time.
· Also, you can’t have defaulted on your current, or any previous, direct debit installment agreement.
Okay, so I’ve done everything necessary, how do I get the lien withdrawn? You’ll need to file another form of course! It’s called form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. Is that a mouthful or what? The name of the form is longer than completing the form itself. Most of the questions are easy, like your name and social security number. The only question that you need help with is number 8: what reason are you requesting the withdrawal for? You want to check box “b.” You entered into an installment agreement. That’s it. Here’s a link to the form: http://www.irs.gov/pub/irs-pdf/f12277.pdf
What if I can’t do all of this stuff? Then you live with the lien until things change. It’s a lien, not a levy. They haven’t garnished your wages, they haven’t grabbed your bank account. Now if you don’t shape up and get your taxes taken care of, that could happen in the future, but not if you stay on top of things and actively work with the IRS to get your debt taken care of.
Don’t play ostrich and bury your head in the sand. Trust me, the IRS won’t just go away. A lien isn’t good, but it’s not the end of the world. If your financial situation is that bad, perhaps you might be able to negotiate an offer in compromise or a reduced payment option. (This is a point where it might help to get professional assistance. Some people are perfectly comfortable with these negotiations, but most folks aren’t). The point is, you have to make the move to solve the problem. You must be in control (as best as you can). Generally, if you’re on top of things, the IRS will be much easier for you to work with.
Great presentation! I mostly use PDFfiller to fill out PDF forms. It also allows you to erase in a pdf, esign and create templates from the form found in their PDF Search Engine.
It’s easy to use and it’s pretty cheap. I think you can get a free trial if you ask for it. I was able to get my needed 12277 form through http://pdf.ac/6LAJV
Hi Tj,
I’m glad you got your lien released. I’m not so sure about handling the credit reporting agencies. I’d send copies to all three of them just to be safe. But I’d talk to a credit expert. That’s out of my league.
Just wanted to let you know that it worked! The Notice of Federal Tax Lien has been withdrawn! This came at just the right time as we were in the process of obtaining a loan commitment.
Thank you so much!
One more thing, what is the best way for us to get this tax lien removed from our credit reports? Do we dispute it with the credit reporting agencies (all three or just one?) or can we just send a copy to the credit reporting agencies without filing a dispute?
Hi Thank you on Tue,
Wow, I’m flattered. I can’t imagine that anyone would save a link to one of my posts for a whole year! (Sorry for the gushing but in my head I keep hearing my mother say, “If you can’t same something worthwhile, don’t say anything at all!” You make me feel good about myself. Thanks.)
Anyway, enough of that. You want to answer question 12. You want to explain what you did. If you paid of the debt then you’ll want to say, “paid off debt on such and such a date by check #XXX,” or something like that. If it’s the installment agreement, tell how you made the three payments on time, the dates of the direct debits, etc.
The idea is–if they’re going to look up that you did what needed to be done–how would they substantiate it? That’s what you want in there.
It was a good question, I should have talked about that earlier. Thanks.
Thank you so much for this article. I have been saving the link for an entire year. I have finally met all of the criteria to file for the release. Can you help me understand question 12 ” Explain the basis for the withdrawal request (attach additional sheets and other documentation that substantiates your request, as needed)”
Do I need to provide a statement in this section or can I leave it blank? What kind of response would be satisfactory?
Thank you!
Thanks Linda,
Good luck with the bankruptcy. And you’re absolutely right about the extension to 72 months.
Also the time frame to repay your lien has been extended. It is no longer 60 months but 72 months per the lawyer today.
I am dealing with the IRS now and have been for several years. My tax debt started in college and they were so easy to work with me. Then I bought a home and they suddenly started placing liens against everything. My tax debt totals $22K and I called the IRS this morning to tell them I was unemployed and the agent’s response was “Well, we are filing liens against you for the remainder of the years”. I was like WOW. But per the new federal 2011 guidelines, if I do this direct installment the lien will be removed. However, my bankruptcy lawyer will navigate all of that. Per my bankruptcy lawyer I can also have the old taxes from 2003-2005 removed. They total about 13K so that will leave me only a lien of around $9K. I should be able to manage that. Thanks for your article!
Thanks Lakesha. Glad it worked for you.
Well you pretty much hit the head on the nail I had the same tax lien issue. And yep. The IRS backed me into a corner and I didn’t know what to do But I found this magnificent guide on removing an IRS tax lien. Case closed.
I just want to clarify something I said earlier, I said that paying off your IRS debt is the best way to remove a lien–but just because you paid the debt doesn’t mean the IRS will remember to remove the lien. Be sure to fill out that form 12277 so that the lien comes off your credit report.