I Have a Lien from the IRS - Can I Get a Fresh Start?

If you have been struggling with back payments owed to the IRS, or if you have found yourself spiraling down into an unmanageable tax debt situation, you likely have wished that you could simply start over, perhaps getting a fresh start.

Well, the IRS wants you to know that you can, and here's how.

Under new guidelines that went into effect in February of 2011, the IRS made significant changes to their lien filing and lien withdrawal procedures. Liens are one of the chief instruments that the government uses to protect their interest in a debt. Liens also have a considerable impact on a taxpayer's future earnings and credit potential.

If the IRS files a Notice of Federal Tax Lien, public documentation is created which indicates a tax debt is on record. Even if a balance is paid down, the record of the initial amount owing remains unchanged. Once the balance is paid off, only then is the lien released, but the lien filing remains on a credit report as a historical record for seven to ten years.

Under new provisions, the IRS raised their dollar threshold as to when a lien filing is procedurally done. According to irs.gov, the IRS lien filing threshold was raised from $5,000 to $10,000. Liens may still be filed on amounts less than $10,000 when circumstances warrant. This is not a retroactive change; the IRS is not releasing liens previously filed under the $5,000 threshold.

Additionally, taxpayers now have additional options to avoid the filing of a lien, and to request a lien withdrawal.

If your tax balance has been fully satisfied, and if the IRS has issued a certificate of lien release, you can now request that the IRS withdraw the lien. This expunges your credit record of the fact you even had a lien, and shields your credit score from any future negative impact of a previous lien filing.

If you wish to request the IRS withdraw their lien, use Form 1227, Application for Withdrawal. In order to request a lien withdrawal, you must have demonstrated a good compliance record over the past three years. This means that all tax returns have been filed timely and that you are current in any needed estimated tax payments. If you have a business with employees, you also must be current in all required federal tax deposits.

Another new provision that the IRS has introduced is their willingness to withdraw the filing of a lien if a taxpayer agrees to enter into a direct debit installment agreement. Rather than mailing in a payment to the IRS, a direct debit monthly plan automatically debits your checking account each month for the payment.

The Form 1227 is used for this as well. In addition, the total balance you owe must be less than $25,000, and your arrangement must full-pay the entire balance over the course of five years. You also must be current in filing all taxes and making any estimated tax payments or federal tax deposits.

The IRS will review your request for a lien withdrawal after you have demonstrated that you can make timely direct debit payments. For three months, the IRS will review to see that the payments have been made. After that, you can petition the IRS to withdraw the lien, as long as you meet the other qualifications mentioned above.

This change applies as well to taxpayers who are currently on a regular monthly plan. If you are willing to switch over to a direct debit agreement, and if you meet the other requirements, you also can request a withdrawal of lien.

More from this Contributor:

What if the IRS files a lien on my home?

How to get a Federal Tax Lien removed

What is the difference between an IRS levy and a lien?