How To Remove A Federal Tax Lien Notice From Your Credit Report

A tax lien notice is the nuclear option in the IRS’s arsenal. Once a tax lien notice appears in your credit report, it could lower your credit score by as much as 100 points and stay on your credit report for up to seven years. Even paying your entire tax debt will not remove it from your credit report. It gets worse. The nuclear winter that comes after a tax lien is not limited to your credit report.

Having a tax lien on your credit report could prevent you from getting a job for as long as it’s on your report (up to 7 years), particularly in the financial and tax administration sectors. It also disqualifies you from certain professional licenses (e.g. Realtor and financial advisor licenses). If you feel this is harsh and unusual punishment, you are absolutely right.

The good news is that since 2011 the IRS has a procedure that allows taxpayers to request the removal of a tax lien notice from their credit report.

If you have a tax lien on your credit report, read on. By the end of this article, you will understand what a tax lien notice is and how you can remove it from your credit report.

Warning: This guide will not help you stop, appeal, or remove a tax lien. If the IRS has a tax lien, it most likely means you owe $10,000 or more in taxes. It is your right to hire a tax professional to represent you. Use that right. At the very least, obtain a free consultation to see what tax relief options you qualify for.

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What Is a Tax Lien?

A tax lien is a legal claim to all the property of a delinquent taxpayer up to the amount owed in back taxes to the IRS, a state, or a local government. Note that a tax lien will not appear on your credit report unless the IRS publishes a Lien Notice.

What Is a Tax Lien Notice?

The IRS uses tax lien notices as a way of informing current and future creditors that they have dibs on whatever property a delinquent taxpayer owns. To illustrate, Vanessa Williams was hit with a federal tax lien on all her property for the amount of $369,249.89 in unpaid income tax. The IRS then filed a tax lien notice at the New York County register office, which made the lien public. In Vanessa Williams’ case, the lien was only for one tax liability, income tax for the 2011 financial year, but a tax lien notice can include up 15 different tax liabilities.

Vanessa Williams' 2014 federal tax lien notice

Even celebrity millionaires like Vanessa Williams are not immune to tax lien notices. In 2014, Vanessa Williams was hit with a $370k federal tax lien for unpaid income taxes

When Can You Remove a Tax Lien Notice?

There are four scenarios in which the IRS will consider removing a tax lien:

1.       The IRS jumped the gun and didn’t have its paperwork in order when it filed the notice

2.       You have an installment agreement with the IRS and you are current with your payments

3.       You convince the IRS that removing the lien will make it easier for you to pay your taxes

4.       It is in the best interests of the IRS and you to do so, such as when the tax debt has already been paid

How To Remove a Federal Tax Lien Notice From Your Credit Report?

Step 1: Find Out If It Is On Your Credit Report (For Free)

When a tax collecting agency, such as the IRS, files a tax lien at a courthouse it becomes a public document and will usually find its way to your credit report. However, there are three credit reporting agencies that matter, Experian, TransUnion, and Equifax. You need to know which credit bureaus (if any) are reporting the lien notice.

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You can check all three credit reports for free by registering with Credit Sesame (Experian) and Credit Karma (TransUnion and Equifax). If the tax lien is attached to your business, consider using Nav (previously Creditera). Nav specializes in providing credit advice to business. Its free version only provides access to Experian’s credit report but it’s a good place to start.

Step 2: Complete IRS Form 12277 “Application for Withdrawal of Filed Notice of Federal Tax Lien.”

FORM 12277 Application for withdrawal of federal tax lien

To complete IRS Form 12277 (see below) you will need to:

  • Provide basic personal identification, such as your name, SSN, and address (items 1 to 8)
  • Attach a copy of the tax lien notice, Form 668(Y) (item 9), you want to remove from your credit report. If you don’t have it, provide whatever information you do have so the IRS can identify the notice of federal tax lien you want to remove. Note that the IRS may have filed more than one tax lien notice.
  • Specify if the tax debt that triggered the tax lien is open, released, or unknown (item 10).
  • Give a reason for requesting the withdrawal of the tax lien notice (item 11). If the reason is the tax lien has already been released, check the last box. Include a detailed explanation of why you think the IRS should remove the notice and attach any documents that support your claim (item 12). Make sure you write “see attached” in the box if you are providing additional documents.
  • Sign and date the document.

Step 3: Attach a short letter to the form that authorizes the IRS to send a copy of your tax lien notice release to any credit-reporting agency, financial institution, or creditor you want to inform. This is important. Without this authorization, the IRS cannot share the information with other institutions.

Specify in the letter the name and address of each third party you want to notify, in this case, all three credit reporting agencies. Click here for the addresses of Equifax, TransUnion, and Experian.

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Step 4: Send the IRS Form 12277 to your local advisory group manager.

You can find the address for your local advisory group manager in Publication 4235.

Step 5: Send the notice withdrawal to all three credit reporting agencies (address above).

The IRS may send a notice to the credit bureaus and financial institutions you attached to your Form 12277, but don’t hold your breath. To be safe, send the tax lien withdrawal to every credit bureau reporting the tax lien notice.

Should You Hire a Professional Company to Remove Your Tax Lien?

Absolutely. It’s always a good idea to get a tax attorney to look over any documents you send the IRS, especially if you are being audited or applying for tax relief. Any information you provide to the IRS can be used against you. As mentioned above, this guide only deals with the removal of a tax lien notice, not the actual lien. Consulting with a tax relief professional will help you avoid expensive mistakes and protect you from handing self-incriminating documents to the IRS. This is particularly important if you have received a tax audit notice or you’re dealing with a large tax debt.

At the very least, find out what your options are under the IRS Fresh Start Program. Certain taxpayers can do this for free. If the IRS has attached a tax lien on your property, you probably qualify for a free consultation with a senior tax professional. Complete this short survey to see what tax relief programs you are eligible for.

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