When the Internal Revenue Service believes that an individual failed to meet his or her full tax burden, the agency may do whatever it takes to recover funds. As such, the IRS may attach a lien to personal property, which means that they can claim it if a person fails to pay up.
Right off the bat, a person might be very concerned about what will happen if they don’t respond properly to the tax claim. After all, no one wants to have property seized by the government. On the other hand, people may not realize the full range of consequences associated with tax liens. Namely, liens can have a dramatic impact on credit scores.
Unfortunately, a tax lien can remain on a person’s credit report even after he or she satisfies the debt. In fact, it will only be removed by credit agencies once seven years has passed.
Fortunately, relatively new tax rules allow individuals to remove a lien from their credit reports before the end of the 7-year period. The IRS’s “Fresh Start” program allows people to have liens removed from credit reports if they meet certain conditions. Once a person is able to repay debt and remain current on tax payments for three years, it’s possible to submit a request for the IRS to have a lien removed from credit reports.
Once the request is approved by the IRS, then credit agencies can be notified about lifting the mark. The good news is that once the lien is removed from credit reports, the slate is essentially wiped clean, which can improve personal credit scores.
This serves as a reminder to explore the full range of consequences associated with tax issues. For those who fall behind on tax bills due to financial hardship, being able to boost credit scores is a critical component of rebuilding financial stability.
Source: Fox Business, “How to Make a Tax Lien Disappear,” Feb. 5, 2014