If you have a federal tax lien, it can affect your credit score, making it difficult to get a loan or mortgage in the future. Although paying off your tax debt can remove the tax lien from your account, many people do not have the funds to do this. One option you have for removing the tax lien is applying for a Withdrawal of the public Notice of Federal Tax Lien. If you qualify, you can apply to have the lien removed, even if you have not paid off the tax debt. This will remove it from your credit history so that you are able to secure a loan and other lines of credit you may need now and in the future.
What is a Withdrawal?
A withdrawal removes the official and public Notice of Federal Tax Lien, which assures other creditors that the IRS no longer will compete for the right to your property. This does more than the release of the lien from the property, as it actually removes the public notice that you have a lien, providing you with a fresh start. There are a few different circumstances that can get the lien withdrawn from your account.
Traditional Withdrawal Application
The traditional withdrawal application encompasses a few different reasons for asking for the removal of the lien. One reason to apply for a withdrawal is if you believe the Notice of Federal Tax Lien was filed in error, prematurely, or not in accordance with the normal procedures of the IRS. You can also apply if you believe that a withdrawal is in the best interest of both you and the IRS. Another reason for applying is when withdrawing the lien will facilitate your ability for paying off the tax debt. Lastly, if you have applied for an Installment Agreement and they still filed a lien, you can often get it removed. You have to provide a detailed reason for why you should have the Notice of Federal Tax Lien withdrawal. There are also two other reasons under which you can apply for a withdrawal under the 2011 Fresh Start Initiative.
Paying off your Federal Tax Debt
If you have paid off your federal tax debt, the tax lien is released from your account within 30 days. If you want it withdrawn rather than just released, then you also must be in compliance for all returns, including individual and business, for the past three years. You also need to be current on any applicable tax estimate payments or deposits. If you meet these qualifications, you can apply for a withdrawal.
When you enter into an Installment Agreement with the IRS, your federal tax lien is released as well. If you want a withdrawal, then you must have a direct debit installment agreement. You also have to be a qualifying taxpayer, which includes individuals and certain businesses, owe less than $25,000 or have paid off your debt to under $25,000, pay off the full amount within 60 months or the expiration of the Collection Statute, be in compliance with all other tax payments, have already made three consecutive direct debit payments, and have not defaulted on this or any other direct debit Installment Agreements with the IRS.
Taking the extra step to get the lien withdrawn rather than just released can put you in a better financial situation. However, the application process can be complex. By working with a tax professional, you can ensure that you file correctly to increase your chance of securing a withdrawal.