No one likes to get in trouble with the Internal Revenue Service. Worse yet is if you’ve neglected to pay your taxes and the IRS files a claim to all your assets, including property until you do.
This so-called tax lien is one of the harshest tools the IRS can use to get your attention. Do not ignore tax lien notices. Until you deal with the tax lien by seeking professional tax lien removal help or paying off your debt in full, the IRS can seize your wages, vehicles, or even sell your home.
Luckily, the IRS instituted the Fresh Start Program in 2011. Let’s dive into details of the program.
What is the Fresh Start tax program?
The First Start Program aims to help citizens and small businesses in difficult situations like the ones mentioned above. After the financial crisis of 2008, thousands of Americans found themselves out of work and unable to pay back their taxes.
The Fresh Start program was an effort to stand in taxpayers shoes following the worst recession in a generation.”
The Fresh Start program helped with these cases because it raised the tax debt to above $10,000 for a tax lien. In other words, in most cases, you would have to owe the IRS more than $10,000 for them to issue you a tax lien.
When the changes were announced in 2011, IRS Commissioner Doug Shulman said they were an effort to “stand in taxpayers’ shoes” following “the worst recession in a generation.” (Source)
Why a tax lien withdrawal is a powerful thing
One particularly helpful tool offered by Fresh Start is the option to withdraw a filed Notice of Federal Tax Lien. To understand why this is so helpful, first understand why a Notice of Federal Tax Lien is so harmful.
When the IRS first attaches a tax lien to your property, it’s a private matter between you and the IRS. (Here are some steps you should take during this time). If, however, after 30 days, you don’t make arrangements to pay back the tax debt, it becomes public.
The IRS files a federal tax lien notice in your local courthouse, and that is visible to potential creditors and employers. That may impact your ability to get access to credit or even jobs in the future.
Also, the tax lien will attach itself to any new assets you acquire, for as long as it is still there. One piece of good news is that the main credit rating agencies said that, starting from July 1, they would not report some tax liens.
So, how can the Fresh Start program help you get your tax lien withdrawn?
The first way this can happen is, of course, if you pay your debt in full. The second way is if you pay your tax debt through a Direct Debit installment agreement.
In either case, you must request the tax lien be withdrawn by filing the one-page Form 12277. There are several reasons you can ask for a withdrawal of the filed Notice, such as:
- The Notice of Federal Tax Lien was filed prematurely or not by IRS procedures.
- The taxpayer entered into an installment agreement to satisfy the liability, and the agreement did not provide for a Notice of Federal Tax Lien to be filed.
- The taxpayer is under a Direct Debit Installment Agreement.
- Withdrawal will facilitate the collection of the tax.
- The taxpayer, or the Taxpayer Advocate acting on behalf of the taxpayer, believes withdrawal is in the best interest of the taxpayer and the government.
This form also requires you to, among other things, “provide a detailed explanation of the events or the situation to support your reason(s) for the withdrawal request.” Then, you mail the form to the IRS office assigned to your account.
Other ways to get a tax lien withdrawal
The most direct way of getting a tax lien withdrawn is to pay the tax debt in full. Some people may qualify for a Direct Debit installment agreement.
Under the Fresh Start program, an installment program is possible if you owe $50,000 or less in taxes. You can spread out these payments via direct debit over six years. The program also makes this easier for you by not requesting financial statements to qualify for this kind of arrangement.
If, however, you owe more than $50,000, you may have to provide a financial statement and fill out more forms. But beware, if you default on the direct debit installment agreement, the IRS can file another Notice of Federal Tax Lien.
Fresh Start also gives you the option of paying back less than the settled amount, or an offer of compromise. It looks at your income and assets to determine if you are unable to pay back in full what you owe.
The IRS says it “will accept an offer if it represents the most the agency can expect to collect within a reasonable period. The IRS will not accept an offer if it believes that the taxpayer can pay the amount owed in full as a lump sum or through a payment agreement.” (Source)
In addition, it can also help to have a tax relief company on your side. The best tax relief companies have tax lawyers and enrolled agents on staff, provide a money-back guarantee and charge competitive rates. Check out which tax relief company is the best fit for you.
Always consult with a tax attorney before providing personal financial information to the IRS.
The road to no more tax liens
Remember that withdrawing a tax lien is a good step toward financial health. But an even better option is to pay all debts, including taxes, in full and on time.
As John Ulzheimer, a credit specialist and former manager at credit score provider Experian, said, “Just because the lien or judgment information has been removed and someone’s score has improved doesn’t mean they’ll magically become a better credit risk.” (Source)
So, if you have the luxury of having a tax lien withdrawn from your public record, be grateful. Armed with financial knowledge and payment discipline, be diligent that it won’t happen again.
Andrew is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.