If you’ve recently resolved debts from a tax lien on your file, your next step to a better credit score and better financial health may mean filing IRS Form 12277. Filing a request to withdraw from a tax lien on your file may help you repair your standing with the IRS.

IRS Tax Liens

What is a tax lien? A tax lien is essentially a collections step taken by the IRS to ensure the debts or back taxes you owe are repaid. When the IRS imposes a tax lien on an individual, they are legally reserving any profit made from your sale of property or assets to pay off debt owed. For example, if you owe debt and decide to sell your home, the IRS will first be entitled to any profit made from your property’s sale until you’ve settled your debt. Once your debt has been paid off, you will be left with the remainder of the profit.

How do I know if the IRS has imposed a tax lien on my financial assets?

Before taking measures to collect your assets, the IRS will send you a Notice of Intent to Levy. This notice is sent to taxpayers who who have failed to pay their back taxes after filing. After receiving the IRS Notice of Intent to Levy, the taxpayer has 30 days to settle their debts before the IRS takes any collections actions.

If the taxpayer has not settled their debts upon receiving the IRS Notice of Intent to Levy, the taxpayer may be served with Form 668(Y). This form confirms that the IRS has filed a tax lien against them.

How Do I Avoid a Tax Lien?  

The best way to avoid an IRS Tax Lien is to pay your debts on time. If you are unable to pay your back taxes on time, the IRS has payment plan options to make paying back dues more manageable for taxpayers.

If you are unsure if you will be able to pay back your taxes by the deadline, you may want to apply for a payment plan by using the IRS Online Payment Plan Tool. If approved, you will have an agreed plan to pay back the IRS in installments. This can help keep you on track with your debt and avoid multiplying your dues.

Having a resolved or unresolved tax lien appear on your credit report can negatively impact your credit score and potentially affect your ability to secure a new mortgage, get a loan, or open a new line of credit.

IRS Form 12277 Instructions

Getting back on track after being served with a tax lien or other collection measure can be challenging. Fixing your credit can take a long time, and living with poor credit can limit your financial options.

IRS Fresh Start Programs offer taxpayers options to help them improve their standing with the IRS and government collections. One of the changes available to taxpayers is the option to withdraw from a resolved tax lien with the completion of the IRS Form 12277. Note: the IRS may consider other aspects of your credit history in addition to filing Form 12277, so the taxpayer may need to take other actions to help the withdrawal process.

Tax Lien Release vs. Tax Lien Withdrawal

Thirty days after you’ve paid your debt, the IRS will automatically “release” the tax lien – meaning your debt has been paid and your credit report will reflect the balance as paid. Creditors will be able to see the tax lien on your report and can take this into account when evaluating your credit. Having this negative mark on your report may jeopardize your ability to secure a new line of credit.

A tax lien “withdrawal” means that a settled or paid tax lien will be removed from your credit report completely. Withdrawing from a tax lien could help to improve your credit, and put you in a better position with creditors when applying for new lines of credit.  

How To Fill Out IRS Form 12277

IRS Form 12277 is a request for the IRS to withdraw (remove) a resolved tax lien from your credit report in order to improve credit standing.

Step One: Get IRS Form 12277

First, download the Official IRS Form 12277 from the IRS website. Try to get access to your copy of Form 668(Y), which is the form that notified you of the IRS tax lien. Having the information on this document may help expedite the withdrawal process.

Step Two: Fill Out Form 12277

Fill out your IRS Form 12277 application for withdrawal.

  • Sections 1-8

Fill out these sections based on your own information.

  • Sections 11-12

Skip ahead to section 11 and check the appropriate box for the reason you’re requesting a withdrawal.

If you have paid, or are in the process of resolving your tax lien, check the box that says: “The taxpayer, or the Taxpayer Advocate acting on behalf of the taxpayer, believes withdrawal is in the best interest of the taxpayer and the government.”

In section 12, add a response as to why the withdrawal would be in the best interest of yourself and the government. You may wish to attach any supporting documentation that may help your request.

  • Sections 9-10

Contact the IRS Lien Desk at 1-800-913-6050 and request any information needed regarding your Form 668(Y).

Step Three: Where to Mail Form 12277

Your Form 12277 must be sent via certified mail to your regional IRS location. Refer to the IRS Collection Advisory Group Numbers and Addresses publication to find out where to mail your tax lien withdrawal request.

Step Four: Wait For a Response From the IRS

Within 30-45 days, you should receive notice from the IRS to confirm or deny your request for a tax lien withdrawal. If your request has been approved, you will receive a copy of the IRS’ request to the courthouse (where your tax lien was filed) to withdraw your tax lien.

Step Five: Check with Credit Reporting Agencies That Your Lien Has Been Withdrawn

To have your tax lien removed from your credit score, you may need to dispute the tax lien with the big three credit reporting agencies (Experian, Equifax, and TransUnion).

Check with each individual agency to ensure that the tax lien has been removed from your credit report. You may need to provide documentation from the IRS confirming your request to withdraw.

Filing Form 12277: Getting a Fresh Start After an IRS Tax Lien

Being approved for a tax lien withdrawal may mean a fresh start to your credit history. Repaying your taxes and debt on time is essential to maintaining good financial health.

The IRS offers a variety of payment options to pay your back taxes:

However you decide to pay, remember that communication and proactiveness is key with the IRS. If you receive any notice of dues or issues concerning your standing with the IRS, it’s best to respond to them immediately.