Taxation & Estate Planning

All about Federal Tax Liens and Getting Them Released

By Darrin Mish

Yesterday I was contacted by Gerri Detweiler who is associated with credit.com She had some questions about Federal Tax Liens, credit and how to get them released. While I was typing her answer, I thought that my blog visitors might benefit from this information as well.

1. When you pay or settle a tax debt, how long does it take the IRS to release the lien? What is the procedure for doing so?

Answer: The statute says that they have 30 days to release the tax lien. See Internal Revenue Code 6325. That's how it's supposed to work but in reality they often overlook it and it doesn't get done. If this happens then a taxpayer can contact the Lien Desk by phone ( 800) 913-6050 fax (859) 669-3805. If you look at a copy of an actual Form 668(Y)(c) Notice of Federal Tax Lien you will notice a bold black box about half down the page on the left hand side. It says that if the lien is not refiled by the refile date in column (e) then the lien is releaseable on its face. That sounds complicated but what it means is that if another lien wasn't filed before the dates in column (e) then the lien is no longer enforceable. This  sometimes complicates matters because the IRS is often reluctant to issue a release for an expired lien.

2. Does the IRS automatically notify the credit agencies that the lien has been released? If not, what do consumers need to do to make sure their credit files are updated?

Answer: When the Certificate of Release gets filed in the courthouse where the lien was originally filed, theoretically the release should get picked up by the credit reporting agencies. A much better practice would be to order three official copies of the release and proactively send them into the three credit bureaus. It could take months or years for them to be automatically picked up by the bureaus.

3. What if you find an tax lien on your credit file and don't recognize it as yours? How do you research it to find out if it is valid?

Answer: This is a much trickier question. What you would need to do is research the public records offices of every county that you have lived in since the issuance of the Federal Tax Lien. The official name for this records office varies by state. In Florida it is called the Official Records of the Clerk of Circuit Court. In California it's called the Office of the Recorder. Some states have most if not all of these records online and some states have none of them online.

4. What if you find an old tax lien on your credit file and aren't sure you have paid it? What is the procedure for investigating it with the IRS?

Answer: You can call the IRS to inquire but this can sometimes exacerbate a problem that has long been dormant. The best way by far to investigate such a situation is to contact a tax professional, well versed in handling tax controversy cases and have them file a Freedom of Information Act request. This is very discreet way to inquire without setting the IRS Collection machine lose on a taxpayer.

5. What if you find an old tax lien on your credit file, believe you paid it but don't have records anymore? What is the procedure for investigating it with the IRS?

Answer:  Similar answer to question 4. You will ultimately have to check with the IRS to see if the liability has been paid. It's important to note that there is a 10 year statute of limitations for the collection of the tax. The ten years begins to run from the assessment of the tax and there are many exceptions to this rule and circumstances that can cause the statute time to be extended (sometimes very significantly). This is another situation that is best left to a professional to decipher.

6. How long should you expect the above to take?

Answer: Such an analysis should take 60 -90 days. A lien release subsequent to a request 30-90 days.

7. What can you do to expedite the process if you are in the process of getting a mortgage, for example?

Answer: You could contact the Office of the Taxpayer Advocate for your local area. See the IRS website at www.irs.gov for the phone number for your local area. The Taxpayer Advocate is an independent branch of the IRS whose job it is to fix bureaucratic snarls and delays. There is no charge for their services. Using the Taxpayer Advocate can be very advantageous, especially from the point of view that you get one person to help you instead of speaking to anyone who answers the phone.

8. Are there any tips you would offer for consumers who find tax liens on their credit files?

Answer: Be very cautious about contacting the IRS about tax liens that may pop up. You can wake the sleeping giant and really turn your financial life into a living hell. It's best to get professional help unless you are sure that you have paid off the lien and it's just a matter of getting a release to clear up that issue.

Full post as published by IRS Problem Solver Blog on June 25, 2008 (boomark / email).