IRS Liens and Your Credit Score

September 9, 2011 by Jan Roberg · Leave a Comment
Filed under: IRS 
Yes, that's an axe

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A question that I’ve heard a lot lately is, “How much damage will an IRS lien do to my credit score?” I recently heard that question again at an IRS panel about liens and they couldn’t answer the question either. I decided to do some research.

The term FICO score comes from a company called Fair Isaac and Company. They developed a computer software program that most of the credit bureaus use to determine your credit worthiness. Because the computer software is the Fair Isaac and Company’s business (and source of their income), they don’t release the mathematical formulas they use to determine the scores. If they did, no one would buy the software, people would just recreate the program and figure their FICO scores themselves. How any one event, such as an IRS tax lien, might affect your personal credit score is a pretty well guarded secret.

That said, there are a few things I can tell you.

  1. Although I can’t say by how much, I can tell you that an IRS tax lien will make your FICO score go down.
  2. Although many debts will come off of your credit report after 7 years, an IRS tax lien will never come off your credit report unless it’s paid.
  3. Once you have paid off your IRS debt, the IRS will automatically issue a lien release. Even with the lien release, the IRS tax lien will stay on your credit report for seven years.

Seven years! But there is something you can do about that. An IRS Lien Release is basically an automatic procedure that happens after you pay off your tax debt. You pay the bill, the release is issued and your credit still stinks. But you can take action.

What you want is an IRS Lien Withdrawal. An IRS Lien Withdrawal expunges the tax lien from your record as if it was never filed. This is what you want to do to bring your credit score up. In order to get an IRS Lien Withdrawal, you have to request it with a special form. Here’s a link to get it: http://www.irs.gov/pub/irs-pdf/f12277.pdf. It’s called form 12277. Remember, every IRS form has a name and number.

You can request an IRS Lien Withdrawal even if you haven’t paid your taxes in full, you just have to have a direct debit installment agreement set up and make a few payments. I have some more information about that in another post: http://robergtaxsolutions.com/2011/06/irs-liens/

An IRS tax lien can do some damage to your credit report, but you have the power to fix it.

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