Removing Federal Liens Due to Unpaid Tax Debt

A lien is a right given to another by the owner of property to secure a debt, or one created by law in favor of certain creditors. In other words, it is a claim on some type of property, making it collateral against money or services owed to another person or entity.

If you have failed to pay your taxes in a timely manner, the IRS may have filed a tax lien against you. This will ensure that the IRS will get some or all of its money back by preventing you from selling property without paying out first. Such a lien can remain on your credit report for up to seven years, even if it is paid. The good news is that there are steps that you can take to remove such unpaid tax liens.

1. First, pull a copy of each of your three credit reports.

In accordance with the Fair Credit Reporting act, you have the ability to obtain a free copy of each separate credit report from each reporting agency once a year. Once you have received your report, you may confirm the amount you owe by referring to the tax lien which provides balance information on the reports.

2. Arrange for payments to the IRS.

Form 656, which can be downloaded on the IRS site, is an Offer in Compromise which provides individuals with the opportunity to set up monthly payments to clear the tax lien. It is always best to repay a tax lien in full, because if you settle for a deal your credit will continue to be negatively impacted. Because the IRS accepts repayments in installments, this is fairly easy to do.

3. Try for an offer in compromise.

If you are unable or unwilling to pay the full amount that you owe to the IRS, you can arrange an offer in compromise which will allow you to settle your debt for less than the full amount that you owe. When determining eligibility, the IRS will consider your ability to pay, your income, expenses and asset equity. You will need to prove to the IRS that if they were to initiate a collection action they would receive a significantly smaller amount than the taxes due.

4. Deal with credit agencies.

If you have taken the appropriate steps, yet the lien still shows up on your credit report, you may begin the dispute process. Each credit agency has its' own set of instructions to file a dispute. Part of the dispute may require you to send proof of repayment, such as a copy of the tax lien payoff letter. Once the investigation is underway the credit agencies will have 30 days to make a decision and remove your lien.

Hire a skilled tax attorney who can help you decide which option is best for you. While an offer in compromise sounds like an attractive option, the process is not for everyone. An experienced tax professional can explain tax complications and determine the best solution for you. If you have taken the proper steps to remove a lien and are dissatisfied with your results, you are encouraged to speak with a tax attorney who can help you appeal a decision you are unhappy with.