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How to Release A Tax Lien: Guide on Removal of a Federal Tax Lien

release tax lienOnce the IRS files a notice of federal tax lien the effects of the lien will remain intact until you get back into compliance with the IRS. In order to release a tax lien you will need to obtain a certificate of release of lien from the IRS. The IRS will need to ensure that your tax liability will be fulfilled in order to issue the release. It used to be rare that the IRS would release a tax lien without the liability being fulfilled but recent policy changes (February 2011) by the IRS states that taxpayers who enter into a direct debt installment agreement can have tax liens withdrawn in most cases.

There are a few main ways the IRS will release a tax lien (or withdraw it with the policy changes recently). Below are the details on each method. Once either of these conditions has been satisfied, the IRS will have 30 days to release the tax lien.

The Taxes Owed Are Paid in Full

The IRS will release the lien once they have received all tax amounts owed, plus interest and penalties. Before the recent announcements in policy changes, a tax lien that was released still showed on your credit history or report as “paid” or released which impacted taxpayers negatively in other ways. The IRS decided to make a change whereby the taxpayer can request to have the tax lien withdrawn so the credit stain of a tax lien is removed. They IRS has begun to streamline processes in order to provide tax lien relief to thousands of taxpayers. This policy will be reviewed in 2012.

Setup a Direct Debit Installment Agreement

Many times taxpayers cannot pay off the taxes in full so the IRS has payment plans available for taxpayers to pay off the taxes overtime. If you choose to pay off the taxes overtime, the lien will still remain in effect in most cases, unless you setup a direct debit installment agreement. As long as you have less than $25,000 in tax debt, generally as of February 2011 or thereafter, an IRS Installment Agreement that is setup with a payment arrangement as direct debit (which means monthly payments are automatically withdrawn from your checking account) can lead to a tax lien being withdrawn upon request. The IRS states though first a period of successful payments must be shown before the lien will be withdrawn. Before these policy changes, or if you setup a different type of agreement, the IRS will not reduce the tax lien when payments are made, meaning the entire balance of the tax lien will show until the total amount of taxes are paid.

Taxes Are Settled Through an Offer in Compromise

The IRS recently relaxed requirements on the Offer In Compromise program. Notably, you can have annual income up to $100,00 now and owe up to $50,000 to qualify with a new Streamlined Offer In Compromise program. The Offer In Compromise program allows taxpayers to settle their taxes owed for less than the total amount. In order to qualify for this the taxpayer will be required to meet a strict set of requirements set forth by the IRS. The taxpayer must make an offer to the IRS for an amount that is equal to or greater than what the IRS would ever expect to collect from the taxpayer, even if they used forced collection mechanisms. An Offer In Compromise is one of the the hardest settlement methods to qualify for and it has a very high denial rate. If you are considering an Offer In Compromise it is highly advised that you use an experienced tax professional to file for you. A tax professional will also assess your situation and determine if you are a likely candidate to receive this type of relief before applying.

Statute of Limitations Expires With Lien Not Enforceable

Like most other debts, IRS debts have a statute of limitations. The typical period is 10 years from the date the IRS sends out your first assessment notice of taxes owed after you have filed. Sometimes the statute of limitations can be extended if bankruptcy was involved and the tax was not discharged, an offer in compromise was filed, form 900 was sign allowing the IRS more time to collect or several other sly tactics the IRS has been known to use.

IRS Accepts a Bond Guaranteeing Payment of Tax Debt

The IRS will remove the lien within 30 days of them accepting a bond that you submit to them. This bond will guarantee your payment of the taxes owed and is almost the same thing as paying the taxes owed in full. It may be difficult to qualify for a bond because the requirements pretty much require you to have enough money to pay the taxes owed in full.

Once 30 days have passed after you have met any of the above requirements the IRS should release the lien and again because of recent policy changes you can request it be withdrawn in most cases. In many cases, the IRS will not release the lien, in which case a little bit of work on your part must be done to get things straightened out. One way you can go about this is by contacting the Centralized Lien Unit by calling the toll free telephone number, (800) 913-6050. You may have to show them some proof the tax was paid and a written acknowledgment of the payment from the IRS. Also, once you get the certificate of release you must record it if the IRS does not. You can also send a copy of the certificate of release to the three major credit bureaus to make sure it gets updated in your credit report that the lien was released.