From time to time, we get great content from our friends over at Advantage Credit. In December, they wrote about Short Sale and Foreclosures and how each affects your credit report. Short Sale Vs. Foreclosure: How Does Each Affect My Credit?
Advantage is back with an update on the latest changes from the IRS regarding Tax Liens. The big change … If you have had a tax lien in the past and you have paid it off in full or by settlement, you can now remove the lien from your credit report, thereby increasing your credit scores.
This is good news for consumers and will help some folks obtain home financing that otherwise couldn’t. It’s not often we cheer for the IRS but this is one instance they deserve some credit (sort of a pun there). Anyway, here’s the skinny, courtesy of Mindy Leisure and Advantage Credit.
Up until now a tax lien, paid or unpaid could haunt your credit report for a long time. Depending on what state you live in a paid tax lien could stay on your credit report for 7-10 years and an unpaid lien could stay on indefinitely. The IRS announced in February they’re about to give those with tax liabilities a break.
The first action the IRS has taken is raising the lien threshold from $5,000 to $10,000. According to IRS Commissioner Doug Shultman, “Raising the lien threshold keeps pace with inflation and makes sense for the tax system. These changes mean tens of thousands of people won’t be burdened by liens; and this step will take place without significantly increasing the financial risk to the government.”
Additionally, the IRS can “withdraw” a lien once the taxpayer pays the lien in full and the taxpayer requests that it be withdrawn. Once a lien is released, according to Shultman “we no longer have a claim to any asset that the lien is attached to”. So instead of it staying on a credit report even after it is released, the tax payer can now request that it be withdrawn and ultimately be removed from the credit report.
They can also agree to withdraw a lien if the taxpayer owes less the $25,000 and enters into a “direct debit installment agreement” with the IRS in which the payments are automatically deducted from an account every month. After a probationary period of payments determined by the IRS they can agree to withdraw the lien.
They have also raised the threshold from $10,000 to $25,000 for small businesses that owe back taxes and want to participate in installment repayment plans. This will allow hundreds of small businesses to take part in a program they weren’t qualified for before.
Lastly they have revamped their “Offer In Compromise” (OIC). This program allows the IRS to settle a debt for less than what is owed if they do not feel the taxpayer would ever be able to repay the full amount. Currently a taxpayer must owe less then $25,000 to qualify for this program, but the new adjustments raise that limit to $50,000. This program is based on annual taxpayer earnings and those allowed to participate is determined solely by the IRS.
The biggest boon to consumers in these changes is that once a lien is released and withdrawn, a borrower can more quickly raise their credit scores. Having a tax lien on a credit report (paid or unpaid) can easily drop a credit score over 100 points. So investigating payment options can be beneficial in the long term. ~ Mindy Leisure