Federal tax lien: file IRS Form 12277 to resolve a claim against your property

IRS Form 12277

Allowing tax debt to go unaddressed for too long can result in the IRS placing a lien on a taxpayer’s assets. A federal tax lien is a document filed with a county government (usually where the taxpayer lives or conducts business) notifying the general public that a taxpayer has an unpaid federal tax debt.

By issuing a lien, the IRS is asserting a legal claim on that individual’s property as a security against the debt they owe to the IRS.

If left unchecked, the claim will end with the IRS seizing the individual’s assets, such as bank accounts, valuables, and real assets with equity, in an attempt to fulfill the outstanding tax debt.


How can I prevent a federal tax lien from being filed?

Preventing a federal tax lien from being filed is done by setting up an installment agreement that meets the IRS’ requirements to avoid lien filing. Liens can also be prevented if a taxpayer sets up the agreement in a timely manner, so the IRS will not need to pursue one. If the IRS has contacted you about an outstanding amount owed, paying the debt in full is a sure way to prevent any lien from being filed by the IRS.


How can an IRS lien be resolved?

There are two different ways to resolve IRS liens — release and withdrawal.

A lien release gets rid of most of the immediate effects of a lien. Because the IRS no longer has any interest in the assets, an individual may sell or transfer their assets at will. The IRS will release a lien 30 days after the tax debt has either been satisfied through an installment agreement or Offer in Compromise. A lien release, however, does not erase all of the effects of a lien. The lien will remain on the taxpayer’s credit history unless the IRS withdraws the lien.


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How to get a tax lien withdrawn from my credit history?

IRS Form 12277 is the form used to request a lien withdrawal.

On IRS Form 12277, line 11 lists four criteria that the IRS uses to consider withdrawing a lien: 

“The Notice of Federal Tax Lien was filed prematurely or not in accordance with IRS procedures.” The IRS will withdraw the lien if the tax that eventually prompted the lien was assessed in error, or if the lien was filed without giving the taxpayer proper notice in advance. This is extremely rare as the IRS has multiple fail-safes in place to avoid these types of mistakes. However, mistakes do still happen, and the IRS will withdraw the lien if you can prove it.

“The taxpayer entered into an installment agreement to satisfy the liability for which the lien was imposed and the agreement did not provide for a Notice of Federal Tax Lien to be filed.” This is the most common method of getting a lien withdrawn.

The IRS Fresh Start Program allows the IRS to withdraw a lien if the taxpayer has entered into a Direct Debit Installment Agreement. In order to qualify for withdrawal, the taxpayer must have filed all their required tax returns for the last three years and must be current with any estimated tax payments.   

“Withdrawal will facilitate the collection of the tax.” A tax lien affects a taxpayer’s ability to borrow money. If the IRS can be convinced that withdrawing a lien will allow the taxpayer to borrow money and pay off their tax debt, they will likely withdraw the lien.      

“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.” If you believe that your situation merits special consideration, check this box on form 12277.


The IRS Form 668(Y), Notice of Federal Tax Lien

Line 9 of form 12277 instructs you to “Attach copy of the IRS Form 668(Y), Notice of Federal Tax Lien, if available,” or provide information about the notice. Attaching a copy of the actual notice will be a huge time saver for the IRS, and will help to expedite your case in good standing.

The fastest way to fill out and file your necessary tax forms is by doing so electronically. That way, your forms will be received by the IRS immediately, as well as legibly and without error. All this works in your favor towards a positive outcome for your claim.