Tax liens can wreak havoc on your credit score. They can prevent you from buying (and selling) a home, increase your costs to borrow (think higher rates on car loans, credit cards, etc.) and even cost you your dream job as more and more potential employers are pulling credit reports. However, there are ways to get these obstacles moved out of your way. And when I say moved out of your way, I mean get them obliterated, as if they never existed in the first place!
So what exactly is a tax lien? A tax lien is the government’s legal claim against your property when you fail to pay your tax bill in full. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets.
If you have been looking for ways to get rid of your tax lien(s), you’re finally in the right place. Below, I’m going to show you 4 ways to get rid of a tax lien. These are all items that you can do on your own without hiring a professional. But if the thought of talking with the IRS stops you dead in your tracks, give me a call – I can help!
Option 1: Pay off the tax debt
If you have the means to do so, and you’re not disputing the tax owed, the quickest way to getting the lien removed is to pay off the debt. The IRS is required to release all liens once the debt has been paid in full. This is typically automatic – you don’t have to do a thing. I would strongly recommend going a step further and requesting WITHDRAWAL of the lien (this is different from a release), which will require you to do a little work.
Paying off the debt can be achieved in a variety of ways:
1. Write a check for the full amount and mail in, or pay online at https://www.irs.gov/payments/direct-pay
2. Use a credit card with a low or 0% interest rate (credit card processing fees will apply – the IRS uses payment processors whose fees can range between 1.87% and 2.00%). Click here to see how to “Pay taxes by credit or debit card“.
3. Satisfy all monthly payments under an installment agreement. Once the last payment is made, the lien will be released.
4. Apply for an Offer In Compromise (OIC). If approved, you have up to 24 months to pay off the balance (or you can make a lump sum payment). Once the balance has been paid in full, the lien will be released.
Option 2: Set up a Direct Debit Installment Agreement
If you owe $25,000 or less in income taxes you can set-up a direct debit installment agreement (DDIA). This is simply an installment agreement where the IRS automatically drafts your checking account each month for a specified amount. Once 3 drafted payments have been made under the agreement, you can apply for a lien withdrawal (this is better than a lien release!). Simply use form 11277 to request withdrawal. Even though you will still owe the remaining tax balance the lien(s) will be removed from your tax records as well as from credit reports that you specify. They completely disappear as though they never existed.
DDIA’s can be obtained by simply calling the IRS and giving your information over the phone, or you can complete and mail in form 433-D. In most cases, you can also apply online at www.irs.gov. Typically, a financial statement and supporting documentation is not required for this type of agreement. However, you will need your bank name, account number and routing number.
Option 3: Use your occupation
Does your job require you to be licensed? If the presence of a tax lien jeopardizes a required license for a job, and without that license you’re subject to dismissal from that job – you have a good chance of getting the ear and cooperation of the IRS. The last thing that the IRS wants is for you to be unemployed. No job = no income = no ability to pay the IRS! And at the end of the day, what they really want is the money.
So if you qualify for this option (are at risk of losing your required license) you can explain your situation to the IRS. Your next step is to complete form 12277 and cite your reasons for requesting the lien withdrawal. This is one of those areas where it’s helpful to have professional assistance. If you find yourself hitting obstacles, simply give us a call at 704-298-1040!
Option 4: Let it expire!
Did you know that after 10 years from the assessment date of your tax, the IRS can no longer collect on a tax debt? Well, it’s true. And for some tax payers it’s a strategy that’s worth its weight in gold. Because remember, once you no longer owe a particular tax debt to the IRS, they are required to release any corresponding liens that may be in place. And if you take it a step further, by requesting withdrawal of the lien (filing form 12277) that lien disappears from the face of the earth!
This expiration date is known as the CSED date. CSED stands for Collection Statute Expiration Date. It’s pretty easy to find out what your CSED is for a particular tax or tax year. Simply call the IRS and ask. Any representative should be able to tell you. But here’s the problem, a lot of times the IRS system calculates the WRONG date, and don’t expect for the representative to catch this (he/she doesn’t even know how to calculate it – a lot of them simply rely on the computer systems). Again, this is where a professional can help. Our practice routinely checks the CSED calculated by the IRS, and we routinely find errors and challenge what’s on their system. We have the tools to do our own reliable calculations.
So here’s an example of how CSED works:
You filed your 2004 taxes on March 20, 2005. Your tax bill was $15,000 and the IRS actually assessed the $15,000 tax due on July 21, 2005. For various reasons you were only able to pay $100 per month for the next 10 years. Your CSED is July 20, 2015, and by this date you’ve only paid $12,000. The remaining $8,000 balance (and any accrued penalties and interest) simply falls of your record. Poof! It’s gone.
The benefits of getting a tax lien withdrawn are huge. You can expect to see an improved credit score, lower interest rates on credit cards/mortgages, lower (or no) deposit requirements for rental agreements, higher chances of securing your dream job….the list just goes on and on. It’s simply up to you to choose to take the first step towards this new and improved life. I encourage you to reach out to our office today for a free and confidential consultation regarding your options. You have nothing to lose and everything to gain.