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A federal tax lien is a legal claim imposed by the IRS on a taxpayer’s property due to unpaid tax debt. This can make it challenging (or impossible) to obtain loans, but even worse, since a tax lien attaches to all of your property, it can limit your ability to sell or transfer ownership of the affected property.
Thankfully, there is an IRS form designed to let you request a withdrawal of a filed Notice of Federal Tax Lien: Form 12277. In short, this form allows you to request the withdrawal of a previously filed Notice of Federal Tax Lien by the IRS. Here’s everything you need to know about Form 12277, including how to complete, file, and eligibility criteria.
When a tax lien is filed, it becomes a claim against your property, including real estate, vehicles, bank accounts, and other assets. The tax lien serves as a public notice to creditors that the IRS has a legal right to your property, and it may impact your ability to sell or transfer ownership of the affected assets.
The IRS may file a tax lien under various circumstances, generally when a taxpayer has failed to address their outstanding tax debt. Some common situations that can lead to the filing of an IRS tax lien include:
The consequences of having an IRS lien filed against you or your property can be substantial. In particular, the lien may restrict your ability to sell or transfer ownership of the affected property, hindering your financial flexibility. Even worse, the lien paves the way for a tax levy, which is when the IRS seizes your bank accounts, retirement accounts, wages, and/or other assets including real estate.
Form 12277, also known as Application for Withdrawal of Filed Notice of Federal Tax Lien, is a form for taxpayers to request the withdrawal of a previously filed Notice of Federal Tax Lien (NFTL) by the IRS.
An NFTL is a legal claim against your property as a result of unpaid federal taxes, and it serves as public notice of the IRS’s interest in your assets. The purpose of Form 12277 is to provide taxpayers with a formal process to request the removal of the filed tax lien from the public records.
The legal basis for the withdrawal of a tax lien under the Internal Revenue Code (IRC) is primarily outlined in Section 6323(j) and Section 6325(a):
While individual cases may vary, the following are general criteria that may make a taxpayer eligible for lien withdrawal.
The first and most important requirement is to fully pay off the underlying tax debt that resulted in the federal tax lien being issued. This includes paying all unpaid taxes, fines, and interest in full.
Taxpayers who want to get their tax liens removed must show a track record of submitting and paying their taxes on time. This involves submitting all statutory tax returns on time and making prompt payments.
Additionally, you must demonstrate three years of continuous compliance immediately preceding your request for tax lien withdrawal. This includes submitting all necessary tax returns and paying all taxes due for the three years prior to the request.
Finally, taxpayers with a current tax bill of less than $25,000 (including penalties and interest) may also qualify for tax lien withdrawal.
The Fresh Start program is an initiative introduced by the IRS to assist taxpayers who are facing financial difficulties in meeting their tax obligations. The program aims to provide relief to individuals and businesses by offering more flexible terms for resolving tax debt. While the program itself does not guarantee lien withdrawal, the more lenient terms for installment agreements and other resolutions provided by Fresh Start may increase your overall eligibility for lien withdrawal.
A withdrawal is when the IRS completely removes the tax lien. A discharge is when the IRS removes the lien from a specific piece of property. To apply for a discharge, use IRS Form 14135.
Form 12277 includes 12 sections, here’s a breakdown of each and what you need to include.
Sections 1-8 require your personal information, including:
If you have a copy of your Form 668 (Y) (Notice of Federal Tax Lien), you will need to attach it to your Form 12277. If you don’t have a copy, you must fill out section 9 with the following information:
This section requires the current status of your tax lien: open, released, or unknown. You must mark X in the box that applies to you.
In this section, you must select the reason you are requesting a withdrawal of the filed Notice of Federal Tax Lien. Simply mark X in the box that applies to you:
This section requires an explanation on why you are requesting the withdrawal. Your statement should convince the IRS that withdrawing the tax lien is in their best interest. For example, if you can demonstrate that the tax lien was filed in error, such as incorrect calculations, make this point clear in your statement.
In addition to your reason for withdrawal, attach supporting documentation to back up your case. This evidence could include:
Once you have filled out Form 12277, and included all necessary information, the next step is to submit. Here’s a breakdown of the submission process.
Collect all necessary supporting documentation based on the grounds for withdrawal. This may include proof of payment, installment agreement details, Offer in Compromise acceptance letter, release of property agreements, or documentation supporting claims of expiration of the statute of limitations or effective tax administration.
Complete Form 12277 accurately and with all of the relevant information as stated above. Include your name exactly as it appears on the federal tax lien notification, as well as your social security or employer identification number (if necessary). In addition, include information on the tax lien you want to withdraw and explain why doing so will benefit both you and the government.
Attach all relevant supporting documentation to your Form 12277. Ensure that you include copies of essential documents that substantiate your request.
Mail your form to the IRS office assigned to your account. If the account has not been assigned, or if you’re not sure where it’s assigned, you can send your application to the IRS Advisory Group Manager in your area.
Once you submit your request, whether by mail or online, you should receive verification that it has been received. The processing period for tax lien withdrawal requests varies depending on a number of factors, including the complexity of your case and the IRS’s workload.
However, in general, the IRS takes 30 to 45 days to consider and reply to your request. During this time, you may get communications from the IRS about your request. To guarantee a smooth and effective process, respond to all IRS communications promptly and thoroughly.
Once the IRS has reviewed your request and come to a decision, they will notify you. Possible outcomes include:
If your application is approved, you will receive official documentation confirming the withdrawal of the NFTL. This confirmation is important for updating your credit reports and providing proof of the lien’s removal. If your application is denied and you disagree with the decision, you have the right to appeal. The denial letter will provide instructions on the appeal process and the timeframe within which you can submit an appeal.
When applying for a lien withdrawal using Form 12277, it’s crucial to avoid common mistakes that could potentially delay or jeopardize the approval of your request. Here are some common mistakes to watch out for.
Ensure that you fill out Form 12277 accurately and completely. Incomplete forms or missing information can lead to processing delays or even denial of the withdrawal request. Take your time to fill out Form 12277 accurately and completely. Refer to the instructions and provide all required information, ensuring consistency with your tax filings and the Notice of Federal Tax Lien.
Be proactive in responding to any communications from the IRS regarding your application. Ignoring requests for additional information or failing to respond promptly can impact the outcome of your request. Be proactive in responding to any communications from the IRS. If the IRS requests additional information, respond promptly and thoroughly to avoid complications in the review process.
Clearly explain the grounds for withdrawal in the provided section of Form 12277. Vague or unclear explanations may lead to the IRS seeking additional information or, in some cases, denial. Provide a concise and clear explanation of your situation to help the IRS understand the basis for your request.
When a tax lien is withdrawn, it is typically removed from your credit report, leading to an improvement in your creditworthiness. You can request to withdraw your tax lien with Form 12277. Ensure that you fill out Form 12277 accurately and completely – missing information can lead to processing delays or even denial of the withdrawal request.
If you want to withdraw a filed Notice of Federal Tax Lien, but unsure if you are eligible or have concerns regarding Form 12277, you may want to seek help from a tax professional. Tax professionals are experienced in handling tax-related matters, including lien withdrawals. They can help you avoid common mistakes that individuals might make when completing the form or providing supporting documentation, reducing the risk of delays or denials.\
If you have questions regarding Form 12277, or withdrawing a tax lien, call the qualified team at the W Tax Group for a free consultation, and the answers you need.
