Do You Have A Tax Lien on Your Records?
Is an IRS tax lien preventing you from obtaining credit? Were you aware the IRS has options to withdraw a lien from your records as if it never existed? Filing IRS Form 12277 Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. is the first step to request a federal tax lien withdrawal. The details regarding the qualifications and criteria for the IRS lien withdrawal are very detailed. I will go over these items so you can determine if you meet these qualifications.
The Notice of Federal Tax Lien and Release of Lien
The majority of taxpayers are aware of the IRS’ ability to file tax liens on property. The lien document filing is called a Notice of Federal Tax Lien (NFTL) and the IRS form number is 668(Y). Federal tax liens are filed in the county records and are very damaging to your credit. These liens can derail your ability to purchase a home, obtain credit, and ruin a business’ ability to get financing.
Once you pay off the tax lien, the IRS will issue Form 668-Z, Certificate of Release of Federal Tax Lien. The release of tax lien is also filed in the county records, but it does not clear the original tax lien from your records. For example, if you decide to purchase a home a few years after the release of tax lien is filed, the mortgage company will see the Notice of Federal Tax Lien and the lien release in the records. While the release of lien does confirm the original lien was paid off, the lender will consider the original NFTL as a part of the creditworthiness review. This is where the withdrawal option and IRS Form 12277 become deal savers.
What is IRS Form 12277 & Withdrawal of Federal Tax Lien?
As previously stated, you can apply to remove the tax lien and the release of lien from your records as if these documents were never filed. This is called a withdrawal of federal tax lien. The options to request the withdrawal on IRS Form 12277 include the following:
- The Notice of Federal Tax Lien was filed prematurely or not in accordance with IRS procedures.
- You entered into an installment agreement to satisfy the liability for which the lien was imposed and the agreement did not provide for a Notice of Federal Tax Lien to be filed.
- You are under a Direct Debit Installment Agreement.
- Withdrawal will facilitate collection of the tax.
- You, or the Taxpayer Advocate acting on your behalf, believe withdrawal is in the best interest of the taxpayer and the government.
The Fresh Start Initiative of 2011 created options for withdrawal based on filing history and Direct Debit Installment Agreements.
Option 1: Notice of Lien Release and In Compliance
The first option for withdrawal created by the Fresh Start Initiative is based on a paid off lien and consistent history of tax filings. To qualify for the lien withdrawal after the tax lien has been released, you must meet the following criteria:
- You have paid the amount due on the Notice of Federal Tax Lien and the IRS has released the lien.
- You have been in compliance for the past three years in filing all individual returns, business returns, and information returns.
- You are current on your estimated tax payments and federal tax deposits, as applicable.
For the homebuyer example earlier in this post, if the taxpayer meets the criteria above, the IRS will withdraw the lien history in the county records and this will no longer factor in the loan approval process. On IRS Form 12277, select the box labeled as the best interest of the taxpayer and government for this option.
Option 2: The Direct Debit Installment Agreement Option
You may also get the Notice of Federal Tax Lien withdrawn via IRS Form 12277 by applying for and obtaining an approved direct debit installment agreement. The criteria for the direct debit installment agreement are below:
- You are a qualifying taxpayer (i.e. individuals, businesses) with income tax liability only. This means if you have payroll or excise tax liens, they do not meet the criteria for direct debit installment and withdrawal.
- Out of business entities with any type of tax debt. Payroll and excise taxes can be included in the installment agreement for out of business entities.
- You owe $25,000 or less. If you owe more than $25,000, you must pay down the balance to $25,000 prior to requesting withdrawal of the Notice of Federal Tax Lien.
- You have made three consecutive direct debit payments under this installment agreement.
- Your Direct Debit Installment Agreement must fully pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier.
- You are in full compliance with other filing and payment requirements.
- You can’t have defaulted on your current, or any previous, Direct Debit Installment Agreement.
Choose the Direct Debit Installment Agreement on IRS Form 12277 for this option. The installment agreement is best for a taxpayer who is trying to obtain credit but does not have the funds to pay the lien in full at the time of application.
Why You Don’t Have to Face the IRS Alone
Don’t let a lien stay on your record permanently. If you meet the criteria for any of the withdrawal options listed above, contact Andris Financial Services to get the lien cleared from your record. As a licensed Certified Public Accountant, I am fully authorized to represent taxpayers nationwide directly in front of the IRS. From pulling your official transcripts to executing and tracking your IRS Form 12277 application, my firm handles the entire process so you can get your financial freedom back.
Submit your case details below for a confidential same day review.
Download the official IRS Form 12277 PDF from the Internal Revenue Service.
IRS Form 12277 Lien Withdrawal FAQ
Is a tax lien withdrawal the same as a lien removal?
Tax lien withdrawal is the official IRS process to remove the lien from the public record. Tax lien removal is an informal term used by taxpayers for the same process as the withdrawal. This is not to be confused with a tax lien release filed by the IRS to state the lien is paid off. A lien withdrawal goes a step further and removes the lien from the public record. Refer to my blog post regarding this distinction. Lien release vs. withdrawal
Do I qualify for a tax lien withdrawal?
The two most common scenarios for taxpayers who qualify for lien withdrawal are the lien was released and the taxpayer has been in full compliance for the past three years or the taxpayer has entered into direct debit installment agreement for a balance under $25,000 and has made three consecutive direct debit payments. Two other scenarios are an IRS administrative error in filing and proving a withdrawal facilitates collection.
What documents are required when filing IRS Form 12277?
Along with Form 12277, you must submit a copy of the recorded lien, proof of payment or compliance (bank statements showing direct debit payments or three years of tax return filing history).
Does IRS Form 12277 remove tax collection accounts or liens from my credit report?
While credit bureaus largely removed public tax liens from consumer credit reports in 2018, open tax liens still severely impact commercial credit, title searches, and background checks. Securing an approved Form 12277 withdrawal issues IRS Form 10916(c), which officially rescinds the public notice as if the lien was never filed, allowing you to provide official verification to lenders, title companies, and licensing boards.
Where do I mail IRS Form 12277?
IRS Form 12277 is not mailed to standard tax return processing centers or dropped off at local Taxpayer Assistance Centers. It must be mailed or faxed directly to the centralized IRS Advisory Group assigned to your state or jurisdiction, as designated in IRS Publication 4235 (Collection Advisory Group Addresses).
How do I clear or withdraw an IRS tax lien from 10 or 20 years ago?
Even though the IRS collection window has expired or the lien was paid decades ago, the original tax lien filing can remain recorded in official records. Filing IRS Form 12277 to apply for a tax lien withdrawal with a copy of the original lien and proof of current tax filings will remove the lien from the public as if it never existed.