By A.J. Gross, C.P.A., E.A.
Delinquent back taxes can show up on your credit report. This will have a harmful effect on your credit score. There are steps that can be taken to remove taxes from your credit report.
The IRS does not report delinquent tax balances directly to the credit bureaus. When taxes are owed, the IRS may have the option of filing a federal tax lien. A federal tax lien is a public record that is filed in the county of your residence. Since tax liens are available to the public, the credit bureau’s collect information on all recently filed tax liens. The credit bureau will then list the tax lien on your credit report.
You can remove IRS tax liens by requesting a lien withdrawal. A lien withdrawal is different from a lien release. A lien release means the lien is no longer attached to your property. However, the original tax lien and the tax lien release are still information available to the public at the county register of deeds. In comparison, a lien withdrawal will completely remove the lien from the public record as if the lien never existed. Once the IRS provides a lien withdrawal, the credit bureaus must remove the tax lien from your credit report.
The IRS will grant a tax lien withdrawal under certain situations. The IRS will issue a tax lien withdrawal after you received a lien release and you are compliant with you tax obligations for the last three years. A lien release is granted once the IRS taxes are fully paid. You are compliant with your tax obligations if all tax returns for the last three years are filed and you are current with estimate tax payments.
The second option for getting a tax lien withdrawal is setting up a direct debit installment agreement for tax balances below $25,000. The installment agreement must be paid in 60 months or less. You must be compliant with all tax obligations. The IRS will grant a tax lien withdrawal once three months of direct debit payments have been made.
Finally, if removing the tax lien will give you a better ability to pay all taxes owed, the IRS may grant a tax lien withdrawal. For example, the bank will approve your request for a loan to pay off the IRS back taxes if the IRS lien is withdrawn. The IRS may grant a lien withdrawal because the withdrawal will facilitate collection.
Once you have obtained a tax lien withdrawal, submit a copy of the withdrawal to all three credit bureaus. The credit bureaus should completely wipe out the tax liens on your credit report.
A.J. Gross, C.P.A., E.A. is President of ALG Tax Solutions. A.J. Gross can be contacted at AJGross@algtaxsolutions.com or www.ALGTaxSolutions.com
This was printed in the July 26, 2015 - August 8, 2015 edition.