No one likes to owe the IRS and too many taxpayers let their balance due build up to the point where liens have to be issued. At that time, the taxpayer’s financial situation is made worse with the Notice to Lien showing up on their credit report and the size of the balance due being too much for them to qualify for many IRS programs to help with repayment.
Back in February, the IRS first announced the Fresh Start program to help taxpayers who owe and lessen the negative effect of collection activities specifically liens. The program won’t stop a lien from being issued but it does increase the amount most taxpayers will have to owe before a lien is issued and it makes it easier to get a Notice of Federal Tax Lien withdrawn. Also as part of the Fresh Start program, are a streamlined Offer in Compromise program and the Express Installment Agreements for businesses with Trust Fund balance dues.
The Fresh Start program has increase the filing threshold for liens. Before this change, a lien was required to be issued when a taxpayer’s balance to had risen to $5000. Under the new program, the IRS is not required to file the Notice to Lien until the balance due has reached $10,000. However, if circumstances warrant it, the IRS can issue the lien before the taxpayer hits that $10,000 mark.
Once a Notice of Federal Tax Lien has been issued, it’s on your credit report. You can get the Notice withdrawn once your balance dues has been paid off and all your tax returns have been filed and you are current on all your tax deposits and estimated taxes. However, you have to apply to have the Notice of Federal Tax Lien withdrawn it’s not done automatically. Please note, this is different from having lien released from assets once the debit is paid. That happens automatically. The withdrawal of Notice of Federal Tax Lien takes the lien out of your financial history. To do that, you need to file Form 12277, Application for Withdrawal.
It is possible to have the Notice of Federal Tax Lien released from you record while you are still paying the IRS (the lien itself will stay until you have fully paid the debt). For that you need to be under a Direct Debit Installment Agreement and meet a few other requirements. First, you have to be an individual, a business that only owes income tax, or a closed business. Then you have to owe less than $25,000 and be making payments that will pay off the debt in 60 months or before the end of the statute of limitation runs out. Of course, you have to have all tax returns filed and be current on all other IRS payments. You can’t have defaulted on this or any other direct debit installment agreement or previously filed a lien withdrawal for this debit (except for an administrative error.) One change with the Fresh Start program is that the taxpayer can pay down their balance due to the $25,000 mark so that they can qualify for the program. Once three payments have been made on the direct debit installment, the taxpayer can file Form 12277 to have the Notice withdrawn. A word of warning, default on this agreement and you don’t get a second chance. The notice is back and you will have to pay off the debit before the withdrawal can be filed again.
The IRS has also simplified the Installment Agreements for businesses that owe trust fund debits. These taxpayers are not eligible for the special Direct Debit Installment Agreement program outlined earlier but if they owe less than $25,000 they could get an installment agreement without a financial statement or verification. Balances above $10,000 need to use the direct debit payment method and the whole debit must be paid off in 24 or less months (or statute of limitation). This debt could also be paid down prior to application. And of course all tax returns and other payments must be current.
The final aspect of the Fresh Start program is a streamline Offer in Compromise. To qualify, the taxpayer must be an individual with W-2 income, unemployed or small business owner with no employees and gross receipts less than $500,000. The total household income must be less than $100,000 and the balance due must be less than $50,000 at the time the offer is made. Qualified taxpayers will have fewer requested for financial info, the IRS will be able to use e-mail for additional info requests and the program will allow more flexibility in considering the taxpayer’s ability to pay.
The best plan is not to get into tax debt. But if you are, one of the Fresh Start programs might make it easier to get out of debt and to clean up your credit report.