We all make mistakes in life and everyone deserves the chance to start fresh. However, when mistakes involve matters related to one's taxes, the IRS is notoriously unforgiving and often imposes harsh penalties. They may even pursue criminal tax charges against delinquent taxpayers. In some cases, individuals with outstanding tax bills may be hit with an IRS tax lien.
If the IRS takes steps to issue a Notice of Federal Tax Lien, an individual’s credit score is likely to be negatively impacted. In fact, to major credit reporting agencies, a tax lien is on par with a bankruptcy filing and can make it difficult to impossible for an individual to obtain a loan or other lines of credit.
During 2013, the IRS reported filing more than 307,000 tax liens. Even in cases where a taxpayer chooses to pay an outstanding tax debt, if no action is taken, the report of a lien can remain on one’s credit report for years.
Through the IRS' Fresh Start initiative, qualifying taxpayers facing a tax lien can request that a lien be withdrawn, even if they haven't paid the disputed debt in full. In order to take advantage of the IRS' Fresh Start program, taxpayers must meet certain qualifying criteria.
For example, a taxpayer must have either paid the disputed tax debt amount in full or the outstanding amount totals less than $25,000 and a taxpayer is enrolled in an IRS "direct debit installment agreement" plan.
Additionally, a taxpayer must be tax-compliant in their filings for at least three years and current with any related payments or deposits.
In cases where the IRS approves an individual’s request to have a tax lien withdrawn, an official "Withdrawal of Filed Notice of Federal Tax Lien" is issued and filed. It's then up to a taxpayer to provide a copy of the official withdrawal to the major credit reporting agencies.
If you are facing a tax lien or other serious tax issues it may be time to contact a tax attorney.
Source: Fox Business, "How to Make a Tax Lien Disappear," Feb. 5, 2015
