IRS Eases Up on Tax Liens For Tax Offenders

March 3, 2011 — -- Finally, some good news - make that great news – from the IRS. They are lightening up on tax liens.

As I've written before, the IRS's draconian tax lien policy has ruined millions of Americans' credit ratings, and probably made it even more difficult for them to pay the debt they owe to the IRS.

The background: The IRS has been typically filing a Notice of Federal Tax Lien when taxpayers owe $5,000 or more and can't pay it off immediately. Tax liens are reported by the major credit reporting agencies, and are among the most serious type of negative information on credit reports.

If a tax lien appears on your credit report, you can expect your FICO scores to take a drastic hit — in some cases up to 200 points; and you can forget about refinancing your home or getting a new credit card to pay off the IRS.

Under the new policies announced by the IRS, here is what's happening.

The IRS Is:

Significantly increasing the dollar threshold when tax liens are generally issued, resulting in fewer tax liens. The limit rises from $5,000 to $10,000 and will be reviewed again in a year. Generally, a tax debt of less than $10,000 should no longer result in the automatic filing of a tax lien.

Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill. Without this change, tax liens remain on credit reports seven years from the date they are paid or satisfied.

Under the new guidelines, liens will now be withdrawn once full payment of taxes is made — if the taxpayer requests it. That means the tax lien can be removed from the consumer's credit reports, not just listed as paid. The IRS says it is streamlining its internal procedures to allow collection personnel to withdraw the liens.

[Consumer Resource: How to Correct an Error on a Credit Report]

Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement. Even if you can't pay the IRS in full right away, you may be able to have the tax lien withdrawn if you enter into an installment agreement and allow the IRS to debit the payments from your bank account each month.