When you fail to pay your tax debts to the IRS, they may put a lien on property you own, such as your house or car.

A lien is a legal claim to that property in the case of neglecting to pay off your tax balance with them. 

For example, when you apply for a mortgage, the bank has a legal claim to your house if you fail to pay off the mortgage. This gives you lower interest rates, as the bank takes on less risk than if you didn’t have the house as collateral. 

With a lien, the government makes a legal claim on your property to better secure the tax debt you owe. A lien can significantly impact your credit score and affect your ability to secure loans.

Fortunately, you can use the IRS Form 12277 to apply to get a federal tax lien withdrawn. The following article will guide you through the process. 

What is IRS Form 12277?

IRS Form 12277, officially known as the "Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien," is a document used to request the withdrawal of a federal tax lien. 

Federal tax liens are one tool the IRS uses to motivate taxpayers to pay unpaid tax debts. When the IRS wishes to use this option, it will file a Notice of Federal Tax Lien (Form 668Y) to secure its interest in the taxpayer's property. 

The notice alerts potential creditors that the government has a legal claim to the taxpayer’s assets. 

If you successfully apply with IRS Form 12277 to withdraw your lien, you can significantly improve your credit score and financial standing. 

Understanding Your Form 12277

When you pay off your tax debt in full, the IRS will release your lien within 30 days of your payment. This is the simplest and best way to get your lien withdrawn. 

However, if you would like to explore other options, then you may qualify for withdrawal under two main conditions:

1. Post-Lien Release:

   • Your tax liability is satisfied, and the lien released.

   • You have complied with filing all required returns for the past three years.

   • You are currently on estimated tax payments and federal tax deposits.

2. Direct Debit Installment Agreement:

   • You are a qualifying taxpayer with $25,000 or less in tax debt (you can pay down the balance to meet this criterion).

   • The agreement will fully pay off your debt within 60 months or before the Collection Statute expires, whichever comes first.

   • You comply with other filing and payment requirements.

   • You have made three consecutive direct debit payments.

   • You have not defaulted on your current or any previous Direct Debit Installment Agreement.

Meeting these criteria can significantly enhance your chances of successfully withdrawing a federal tax lien.

How To Withdraw A Federal Tax Lien

Withdrawing a federal tax lien involves several steps, and you must carefully follow each step to get the best chance at a withdrawal:

Download IRS Form 12277

You can find the IRS Form 12277 here on the IRS website. The fillable PDF allows you to complete the form electronically, or you can print it and fill it out by hand. 

Double-check that you have the latest version of the form on file, as the IRS may update it at any time. 

How to Fill Out Form 12277

As mentioned before, accuracy is key when filling out the Form 12277 instructions. Here’s a step-by-step guide to filling them out accurately:

1. Taxpayer Information: Enter your full legal name, current address, and Social Security number or EIN. These need to match your IRS records (so be sure to keep your address and legal name up to date).

2. Tax Periods: List the tax periods and types of taxes involved. This information can be found on your Notice of Federal Tax Lien.

3. Reason for Withdrawal: Provide a detailed explanation of why you believe the lien should be withdrawn. Doing this with a tax professional is a good idea to make sure it is sorted out without issue. Many people have sorted out their tax problems by getting help from a professional and entering into a congenial agreement with the IRS. The three most common reasons are: (1) providing proof of payment, (2) proof of an accepted installment agreement, or (3) proof of an error in the original lien filing.

4. Signature and Date: Sign and date the form.

Mail Your Form

Once you’ve completed the form, either digitally or by hand, you can mail it to the IRS office that filed your original lien. It’s best to use certified mail with a return receipt for this for proof of delivery. 

Get A Response From The IRS

Once submitted, you must wait for the IRS to review and respond to your request. The review process can take up to 30 days. If your application is approved, the IRS will send you a confirmation of the lien withdrawal.

However, suppose your Form 12277 is denied. Then, you’ll need to find additional documentation to prove your case. In that case, the IRS will notify you and provide further instructions on how to move forward.

Dispute the Tax Lien with Credit Agencies

To ensure the public notice of your lien is off your record, you can send a copy of the withdrawal notice to the major credit bureaus (Equifax, Experian, and TransUnion) along with a letter requesting the removal of the lien from your credit report.

Once they confirm, your credit reportshould no longer reflect having a lien on your property.

When Will The IRS Withdraw A Federal Tax Lien?

The IRS will consider withdrawing a federal tax lien in several circumstances:

• The tax debt is paid in full.

• You’ve entered into a direct debit installment agreement.

• The lien was filed in error.

• Withdrawing the lien will facilitate the collection of the tax debt.

Each case is evaluated on its own merits, and the IRS is willing to negotiate. Your options will improve the more cooperative, communicative, and reliable you are.

Providing thorough documentation and a compelling reason for the withdrawal can increase your chances of success.

Frequently Asked Questions

Where Do I Send Form 12277?

Form 12277 should be sent to the IRS office that filed the original lien. The address can usually be found on the Notice of Federal Tax Lien (Form 668Y).

My Form 12277 Was Denied. Now What?

If your application is denied, you can appeal the decision. The denial letter will include instructions on how to file an appeal.

However, this is only worth doing if you have evidence worth considering for the IRS that has not already been provided and examined. 

Can You Send Form 12277 Online?

At the moment, Form 12277 is not available to be submitted online. You must mail the form to the appropriate IRS office directly.

The Easiest Way To Get Rid of a Tax Lien

The simplest method to get rid of a tax lien is to pay off the debt in full and then request a withdrawal of the lien using Form 12277. 

If paying off the loan in full is not an option for you, there are other options available for paying off your debt and getting your lien withdrawn with a licensed tax attorney.

The more cooperative you are with the IRS, the more likely you’ll be able to come to a path forward to releasing you from the debt.