IRS Form 12277 Tips: Application for Withdrawal of Federal Tax Lien
You can use IRS Form 12277 to request a withdrawal of a Notice of Federal Tax Lien (NFTL). The IRS files the NFTL with a public office—such as a county recorder—to inform your other creditors of the IRS lien interest in your property.
The Purpose of Form 12277
The IRS generally only withdraws tax liens in specific circumstances. You’ll need to explain why the lien should be withdrawn and provide supporting documentation to substantiate your request.
When to Use Form 12277
If you are trying to get any loan, your potential lender may search the public records and check your credit first. As of April 2018, tax liens no longer appear on credit reports from the major credit bureaus, but lenders may still see the NFTL if they search the public records.
Be aware that even if the IRS withdraws the lien, you will still be responsible for paying your tax debt.
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Reason for Requesting Withdrawal of the Notice of Federal Tax Lien
You must provide a reason for requesting the withdrawal on line 11 and an explanation on line 12. There are only four reasons the IRS will consider withdrawing the NFTL.
The IRS Filed the NFTL Prematurely or Not per IRS Procedures
This would include NFTLs filed in any of the following situations:
- The IRS filed the NFTL when the bankruptcy automatic stay was in effect.
- The IRS employee who filed the NFTL knew you had a carryback, adjustment, or overpayment that would satisfy the liabilities associated with the NFTL.
- You were in a Combat Zone or participating in a contingency operation, or are hospitalized for an injury sustained while serving in a Combat Zone or contingency operation.
- The IRS wrongly filed the NFTL for an Obamacare shared responsibility payment.
- The IRS filed a duplicate NFTL.
The IRS Filed an NFTL when you’ve Entered Into a Qualified Installment Agreement
The IRS allows you to request a lien withdrawal if you’ve entered into an installment agreement that meets the following conditions:
- You’ve entered into a Direct Debit Installment Agreement (DDIA) or converted your regular installment agreement to a DDIA.
- You have income tax liability only or are an out of business entity with any tax debt.
- You owe $25,000 or less. If you owe more than this, wait until you pay down your balance to $25,000 to submit Form 12277.
- Your DDIA pays you full balance within 60 months or by the collections statute expiration date, whichever comes first.
- You are in full tax compliance (no unfiled tax returns or delinquent estimated tax payments).
- You have made three consecutive direct debit payments.
- You have not defaulted on this or any prior DDIA.
Withdrawal Will Facilitate Collection of the Tax
Under this provision, you need to show exactly how the lien withdrawal will help the IRS collect more tax. A lien withdrawal may make it easier to get a loan so you may use this provision if you need a loan to earn more income.
For example, a lien withdrawal may allow you to get a car loan. If you need the car to do your job, the lien withdrawal could enable you to make payments towards your tax debt.
The withdrawal will not be granted under this provision if you have unfiled tax returns or haven’t paid your estimated taxes or tax deposits.
If a lien subordination or discharge will achieve the same result as a withdrawal and facilitate the collection, the IRS will not withdrawal the lien. You should consider requesting a discharge or subordination in these cases.
Withdrawal Is in the Best Interest of the Taxpayer and the Government
This provision gives the IRS the chance to withdraw the NFTL in situations not covered by the other three provisions. The tricky part is convincing the IRS that the lien withdrawal is in their best interest.
If you are asking the government to give up their interest so you can sell or refinance your home, the IRS may decline your withdrawal request because a lien discharge or subordination could accomplish this objective.
How to Complete Form 12277
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Personal Information Section
Lines 1 through 8 on Form 12277 involve your basic personal information. Just make sure you write your name as it appears on the NFTL and that you enter your Social Security Number correctly.
If you are working with a tax professional as your representative, their information goes on line 3.
Attach Form 668(Y), Notice of Federal Tax Lien,
Line 9 asks you to either attach Form 668(Y) (the Notice of Federal Tax Lien) or to provide information from the form. You’ll make things easier for the IRS if you attach a copy of the NFTL, which could speed up the time it takes to process your request.
If you don’t have a copy of the NFTL, your representative can request a copy from the IRS before you submit Form 12277.
Current Status of Federal Tax Lien
You have three options when selecting the current status of the tax lien on line 10:
- An “Open” tax lien means you still owe some or all of the tax liabilities listed on the NFTL.
- A “Released” tax lien means you’ve paid all the taxes listed on the NFTL or that the NFTL is no longer enforceable.
- You can select “Unknown” if you don’t know the current status of the tax lien.
Supporting Your Lien Withdrawal Request
For example, if you are stating that withdrawal will facilitate collection of the tax, explain exactly how the lien withdrawal will improve your credit and allow you to pay more towards your tax debt. If you need more space, you can attach additional sheets, and you should also attach any supporting documentation.
Submitting Your Form 12277
Mail your form to the IRS office assigned your account. If you aren’t sure where to send it, use Publication 4235 to find the appropriate office based on where you live.
Contact a tax professional to get help determining when to file Form 12277 and completing your application for a withdrawal of a Notice of Federal Tax Lien.