“Michelle, I recently paid a federal tax lien with the IRS. I am having a problem though because the IRS is still reporting the lien on my credit reports. The lien says it has been released, but aren’t they supposed to remove the lien from my credit altogether now that it has been paid? This is really hurting my credit – help!”
I receive questions like the one above on an almost weekly basis from HOPE4USA clients, Realtors, loan officers, and from Facebook followers. Typically, just because a negative item on a credit report has been paid or settled, that does not mean that the item will be removed from the credit report. The Fair Credit Reporting Act (FCRA) allows for negative items to remain on a consumer’s credit report, even if the item has been paid, until the credit reporting statute of limitations has expired. (Check out my article “How Long Will Items Stay on My Credit Report?” to see the specific statutes of limitation for different types of credit report items.) Released tax liens are able to remain on your credit reports for 7 years from the date the lien is released. Unpaid tax liens can remain on your credit reports indefinitely – yikes!
How Liens Show Up on Your Credit Reports
Thankfully, when it comes to federal tax liens there IS a way to have paid liens removed from your credit reports prior to 7 years from the release date. Before I explain how the lien can be removed from your credit, let’s take a quick look at the way tax liens show up on credit reports in the first place. It is important to understand that tax liens (federal or state) are not reported to the credit bureaus. The IRS does not notify the credit bureaus whenever a lien is placed against a consumer. However, liens are public records and the credit bureaus proactively search courthouse records and add them to consumer credit reports.
How to Remove Paid Federal Tax Liens
In February of 2011, the IRS adopted a new policy regarding federal tax liens known as the Fresh Start Program. The new policy states that if a taxpayer will pay their bill in full, the lien will be withdrawn by the IRS once it has been paid. Eligible taxpayers may even be able to have a lien withdrawn if they simply enter into a payment arrangement call a Direct Debit Installment Agreement – wow! Of course, when it comes to a having a lien withdrawn under a payment arrangement there are a lot of rules (i.e. the lien balance must be $25,000 or less, you must have made at least 3 consecutive payments, etc.).
Remember how I mentioned above that the credit bureaus proactively search public records and report liens on consumer credit reports? Well, the credit bureaus only choose to report filed and released liens to on consumer credit reports. If you send the credit bureaus proof that your tax lien has been withdrawn then they will remove the lien from your credit reports.
If you are a current member of HOPE4USA with a paid federal tax lien or a federal tax lien currently involved in a repayment plan, please contact your case manager. You may be eligible to request for the lien to be withdrawn! Unsure if a tax lien is currently lowering your credit scores? CLICK HERE for a list of websites to compare where you can see a copy of your credit scores today.
Michelle Black is an 11+ year credit expert with HOPE, the credit blogger at www.HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here.