Receiving a tax lien from the Internal Revenue Survey can be a scary experience - for consumers and their credit score.
While it's obvious that these liens should not be ignored, it may be less obvious what the appropriate steps are to take. Consumers should first determine if the lien is legitimate or may have been made in error, according to a recent report by New Jersey newspaper The Record.
Taxpayers with a legitimate lien should quickly make efforts to pay the IRS the debt they are due. Waiting can prolong the negative effects tax liens have on a credit score, which may make it harder for consumers to obtain new mortgage, auto and credit card loans down to road.
"There is an alternative," the report said. "In some cases, you may be able to have the IRS 'withdraw' the tax lien. Unlike a tax lien release, a withdrawn lien retroactively removes the lien as if it was never filed."
A federal tax lien may be withdrawn in instances when it would be in the best interest of the recipient, it would help collect the tax more quickly, if the lien was filed incorrectly or too soon and when an installment agreement has already been established to pay off the debt, according to the IRS. It may also be made secondary to another lien.
People who pursue such a withdrawal may benefit from working with a tax professional, according to the report. This can help clarify and avoid some of the complications that occur in a tax lien withdrawal. Individuals who receive an erroneous tax lien will also be required to go through this process.
Like any kind of erroneous credit information, tax liens that occur in error need to be reported to credit bureaus. These are the only agencies able to change information on a credit report and ultimately shape a consumer's borrowing ability. A certified public accountant may be able to help consumer remove incorrect information from their credit, according to the report.
Correct information, however, may not be pulled from a credit report despite its ability to damage a person's loan eligibility. Like a late payment on bills, tax liens remain on a consumer's credit report for seven years. Its effect weakens over time and may be overlooked if an individual takes effort to improve his or her money management skills.
Credit Score Articles
How a federal tax lien hurts one's credit
6/11/2010 9:24:00 AM
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