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Posted on 4 October 2017 | 4,763 views

How to Remove a Tax Lien From Your Credit Report

In February 2011, the IRS announced a set of new policies called the “IRS Fresh Start” program regarding unpaid taxes in an effort to “…Help Struggling Taxpayers Get a Fresh Start…” One of the changes will directly affect credit reports and possibly raise credit scores.

If the taxpayer pays their lien in full, the IRS will withdraw the lien. Normally an unpaid tax lien can remain in a consumer’s credit file indefinitely and a paid tax lien can remain in a credit file for 7 years although it would show as released.

The problem with a released tax lien is similar to the issue of a paid collection on a credit report. Both are negative. A released tax lien is as bad as an unpaid tax lien, it is still a negative mark. According to the IRS website, they will make it “…easier for taxpayers to obtain lien withdrawals after paying a tax bill and withdraw liens in most cases where a taxpayer enters into a direct debit installment agreement.”

In the past it had been very difficult for delinquent taxpayers to get an IRS lien withdrawn. Now, taxpayers have an opportunity to restore their credit as a tax lien withdrawal will be treated as if it were never issued. Prior to the new policies when a consumer paid tax liens, the IRS would release the lien but the negative mark would continue to report in a consumer’s credit file for 7 years.

To take advantage of the IRS’ new policy, delinquent taxpayers owing $25,000 or less can pay in full or enroll in a direct debit installment agreement to have payments taken directly from your paycheck or if you owe between $25,000 to $50,000, payments to the IRS are automatically withdrawn from the taxpayer’s bank account.

Taxpayers currently enrolled in a standard installment plan can switch to a debit installment agreement to take advantage of the new policy and taxpayers currently enrolled in a direct debit agreement can request a lien withdrawal. A probationary period of making debit payments is required before the IRS will lift a lien.

The new IRS policy is great if you are willing to pay the lien in full. Unfortunately the new policy does not apply to tax settlements. This new policy is similar to a pay for delete and can mean a better credit score if consumers do not have other negative items such as collection accounts, repossessions, bankruptcies or charge-offs weighing down credit scores.

A spokesperson, Norm Magnuson, VP of Public Affairs for the Consumer Data Industry Association, a trade organization for the three major credit bureaus, said “I’ve confirmed that all three credit reporting agencies remove withdrawn IRS tax liens.”

Only time will tell if delinquent taxpayers take advantage of the new IRS policy. It seems to be a great incentive for consumers engaging in credit repair. Barring other significant derogatory items, having a tax lien removed will boost credit scores.


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