Tax levies and liens can be the kiss of death when they show up on your credit report. In addition to lowering your credit score significantly, the credit bureaus are able to report these notices indefinitely until you settle your unpaid federal tax debt.
A tax lien, more formally known as a Notice of Federal Tax Lien (NFTL), attaches to your personal property and informs the public that in the event you sell your property (while the lien is in effect) your debt will be paid off with proceeds from the sale. A levy on the other hand is a confiscation of the payment owed directly from your monetary accounts and/or paycheck. The best way to avoid either one of the aforementioned actions is to pay your debt in full before the notices are filed. The IRS also has a number of installment plans available if the balance is $10,000 or less.
In recent years the IRS enacted the Fresh Start Program, an initiative which permits taxpayers to file for what’s known as a ‘withdrawal’ before the underlying debt is paid. Last year, the IRS issued close to 7,000 lien withdrawals—not nearly the number of liens issued, but definitely a clean slate for the individuals reprieved!
Do I Qualify?
In order to receive a withdrawal you must meet the following criteria.
- Filed individual and business returns for the last 3 consecutive years
- Tax liability has been resolved; lien has been released
- Current on tax payments and federal deposits
If you meet the aforementioned specifications head over to the official IRS website and fill out IRS Form 12277, Application for Withdrawal. After the tax lien is withdrawn you can then contact the major credit bureaus and request it be removed from your credit report. In turn, this may improve your credit score.
Levies are a bit harder to remove because they are tied to your bank account via the IRS. The first step to take once a levy has been issued is to contact the bank and ascertain the details encased in the judgment. Confirm that the paperwork stipulates the accurate amount of debt you owe by gathering all relevant paperwork. To file a refusal of the levy, submit Form 9423, Collection Appeal or Form 12153, Applications for Collection Due Process Hearing. In extreme cases, bankruptcy may be a viable option if the levy in question is for a debt which cannot be discharged. Examples of this include child support payments, student loans and certain types of taxes. Levytaxhelp.com can help you determine exactly which options are available to you with the help of their certified attorneys.
The lien and levy removal process can be quite overwhelming for someone unfamiliar with the process. If you’re unsure what steps to take in the removal of these penalties or have other questions regarding IRS tax help, get in touch with a professional agency. There’s no better time than the present to get your finances under control.