What Is the Best Way to Remove a Paid Tax Lien From My Credit Report?

Tax liens are one of the seven most derogatory items you can have on a credit report, but you might be able to have the credit bureaus remove it immediately. The Internal Revenue Service helps taxpayers improve their credit rating when they settle their debt with the federal government. However, you must pay every cent you owe, even penalties and fees.

Tax Lien Withdrawal

If you pay off your tax lien, the IRS automatically releases the lien because of a regulatory change in February 2011. Before February 2011, the credit bureaus could report a paid tax lien for seven years this no longer applies to settlements with the IRS. Thus, if you make a partial payment through an "Offer in Compromise" the lien stays on your credit history for seven years.

Requesting Removal

The IRS does not automatically withdraw a paid tax lien. You must file an Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. You must furnish a copy of your form 668(Y) -- for a Federal tax lien -- and any information that proves you paid your tax lien, such as a certificate of release. The IRS automatically sends out a Certificate of Release of Federal Tax Lien within 30 days of your payment on the tax bill.

Considerations

If you negotiated a partial payment, you might be able to remove your tax lien by disputing the record with the credit bureaus. The bureaus must verify the tax lien with the IRS ,and the IRS must be able to document the tax lien. Even if you legitimately owe money on the tax lien, the Fair Credit Reporting Act requires creditors to report accurate information as well as verifying data.

Tip

The rules for withdrawal of an IRS tax lien apply to installment plans. You can file a request to withdraw the lien as soon as the IRS accepts the installment agreement. This might mean the IRS removes the lien long before you make your final payment on the loan. In the future, you should enter into an installment agreement or find some other way to pay your IRS bill, such as with a credit card advance, instead of ignoring the debt.