If you have an IRS tax lien on your credit report, it can remain there indefinitely unless you pay it off. If you pay the tax lien in full it will remain on your credit report for another seven years from the paid date. However, if you take certain steps to have the tax lien “withdrawn” by the IRS, you can get if off your report sooner. And in certain circumstances, you can get the tax lien withdrawn just by entering into a payment plan with the IRS.
The federal Fair Credit Reporting Act (FCRA) governs how long credit reporting agencies (CRAs), like Experian, TransUnion, and Equifax, can report negative information on your credit report. For tax liens, the rules are quite draconian. (Learn more about how long negative information stays on your credit report.)
Unpaid tax liens. The FCRA does not limit how long and unpaid tax lien can remain on your credit report. That means that theoretically, the unpaid lien can appear on your report indefinitely. Experts say that often the CRAs will remove the unpaid lien after about 15 years. But they are not required to do this.
Paid tax liens. If you pay the tax lien in full, then the CRA must report the lien as paid in full. However, the fact that the lien existed will remain on your credit report for seven years from the date you paid it. 15 U.S.C. § 1681c(a)(3).
In 2001 the IRS announced new rules which allow taxpayers to get certain tax liens “withdrawn” and then have them removed from their credit reports without regard to the traditional seven-year waiting period. Technically, you are asking the IRS to withdraw the Notice of Federal Tax Lien. Here’s how it works.
In order to have a Notice of Federal Tax Lien withdrawn, you must meet one of two circumstances:
You pay it off. You can get the lien withdrawn if:
Note that you must pay the lien in full in order for the IRs to withdraw it. Although the IRS will “release” a tax lien if you enter into an agreement with the IRs to pay less than what you owe (for example, through an Offer in Compromise), and then meet your part of the agreement, this will not qualify you for an IRS withdrawal of the lien.
You enter into a Direct Debit Installment Agreement with the IRS. To get the tax lien withdrawn this way, you must meet the following criteria:
You can learn more about these criteria in the IRS 2011 announcement about the Fresh Start program.
You must request that the IRS withdraw your tax lien; it won’t happen automatically. To do this, you fill out and send to the IRS Form 12277, Application for Withdrawal of Notice of Federal Tax Lien.
If the IRS approves your request, it will record the withdrawal (called Form 109169(c), Withdrawal of Filed Notice of Federal Tax Lien) with the county recording office and send you a copy.
The three major CRAs have agreed to remove a tax lien from your report if the IRS withdraws the lien. To get this done, use the CRA dispute process – you dispute the lien and provide a copy of the IRS withdrawal form. Once the CRA confirms the withdrawal, it will remove it from your credit report. (Learn more about how to dispute an item on your credit report.)