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.
A tax lien withdrawal removes the IRS lien from the public records. Getting the lien withdrawn may make it easier for you to get a loan or sell your home.
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 You’ll need to explain why the lien should be withdrawn and provide supporting documentation to substantiate your request.
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.
You can use Form 12277 to have the lien removed from these public records. Having the NFTL may make it easier to get a loan, refinance your home, or sell your home.
Be aware that even if the IRS withdraws the lien, you will still be responsible for paying your taxes owed.
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.
This would include NFTLs filed in any of the following situations:
The IRS allows you to request a lien withdrawal if you’ve entered into an installment agreement that meets the following conditions:
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 taxes owed.
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.
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.
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.
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.
You have three options when selecting the current status of the tax lien on line 10:
Line 12 is used to explain why the IRS should grant the lien withdrawal to you. In this section, you can explain in detail the facts supporting the reason you chose on line 12.
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 taxes owed. If you need more space, you can attach additional sheets, and you should also attach any supporting documentation.
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.