- A federal tax lien is the government's legal claim against anyone who neglects or fails to pay a tax debt.
- There are two types of certificates for the removal of an NFTL from a credit file.
- The first is a "release" where the lien is paid or becomes unenforceable but remains on the credit file as required by law. The second is a "withdrawal" where it is taken off the public record and, therefore, off of a credit file.
A federal tax lien every so often causes death to a real estate transaction. It shouldn’t. Its solvency or release might require services of a tax attorney.
However, in most situations professional help might not be necessary to remove a Notice of Federal Tax Lien (NFTL). Let me explain!
What’s a federal tax lien?
A federal tax lien is the government’s legal claim against anyone who neglects or fails to pay a tax debt. The lien could be attached to any property, including real estate, personal property and financial assets.
Title and credit reporting firms collect an NFTL recording promptly.
The life cycle of NFTL
Statute of limitations to collect a tax lien is 10 years. However, the 10-year collection period may be suspended or refiled. The IRS has 11 years plus 30 days after the assessment in which to refile its lien.
According to the Fair Credit Reporting Act, an NFTL remains as a public record for the same period of 10 years when reported by credit reporting firms. However, it can be withdrawn seven years after final payment.
Getting a lien off of a credit report
There are two types of certificates for the removal of an NFTL from a credit file.
The first is a “release” where the lien is paid or becomes unenforceable but remains on the credit file as required by law. The second is a “withdrawal” where it is taken off the public record and, therefore, off of a credit file.
A seller with a lien on his or her property who wants to sell or a borrower who wishes to refinance can request a “withdrawal” with the applicable recording office, even if the lien is not released or is still in effect.
Here’s an instructional video by the IRS that explains the eligibility and how to complete the required form.
A paid-released tax lien can also be removed faster from a credit file by indicating the specific basis for a “Withdrawal Request” (Form 12277).
For instance, the person can show and document that the presence of this tax lien on his credit file is preventing him from getting a professional license or better job. The IRS welcomes this action because it produces the best interest of the taxpayer and government.
For an unpaid lien, a taxpayer entering into the payment plan agreement with the IRS can also request a “withdrawal” after three on-time payments into the plan.
Depending on the overall homebuyer credit profile, deleting a tax lien from one’s credit file can improve a credit score and, therefore, increase mortgage eligibility with a suitable rate and term.
Abracadabra, tax lien
For a lien to disappear forever, it must be properly recorded. When the IRS approves a “withdrawal request,” it will record it at the office where the original NFTL was filed and provide the taxpayer a copy of the document for his or her record.
To check on the status of the release, taxpayers can call 1-800-913-6050.
Taxpayers can also then ask the IRS to notify the credit reporting firms of the withdrawal. However, to ensure speedy deletion of the tax lien, taxpayers can get their free annual credit reports online from each of the three credit reporting firms (Experian, TransUnion and Equifax), instantly dispute an NFTL, upload the certificate and receive three free updated reports.
A free credit score is not included. To get a credit score, go to myfico.com. They only make and sell FICO scores.
Lastly, lien releases are currently handled out of a central location in Cincinnati, Ohio.
Contact the IRS Centralized Lien Operation with any questions regarding lien documents:
Toll-free phone number for taxpayers: 1-800-913-6050
Toll-free phone number for recording offices: 1-800-913-4170
Mailing address:
Internal Revenue Service
Centralized Lien Operation
P.O. Box 145595
Stop 8420G
Cincinnati, OH 45250-5595
The reality is that most people opt to hire professional help when it comes to a tax lien. Still, the information provided above can help you ask the right questions.
Recognize that some of your clients might be willing to handle the work themselves. Be a hero and give your client the option to be informed while he or she could save hundreds — maybe thousands — of dollars.
I encourage you to educate, empower and prosper.
Nabil Captan is the founder and CEO of Captan and Company. You can follow him on Twitter @nabilcaptan or on LinkedIn.
