The Offer in Compromise isn’t over when it’s over

ber0-005The IRS Offer in Compromise isn’t over when you get the letter approving settlement with the IRS.  Don’t get me wrong, the Offer in Compromise (OIC) can be a great solution for some people with IRS debt. But unlike a chapter 7 or chapter 13 bankruptcy case, an offer in compromise isn’t over when you may think it is, it isn’t even over when you’ve paid the agreed upon amount.

What?!!!   It isn’t over when it’s over?  No, it isn’t.  Or as Yogi Berra once said, “The future ain’t what it used to be.”

Unfortunately, IRS rules require that you do a few things to ensure the settlement remains in place.


You have to file your tax returns every year for 5 years and you have to file them on time.  Now…if you don’t file them on time, the IRS won’t just pull the rug out from under you.  It will send you a warning letter before it does because it doesn’t want to waste the time and effort it put into the offer either.  But in any event, if your offer in compromise has been paid, you should triple check the calendar each year to make sure you have filed your return.


The corollary to the Tax Filing Requirement is the Tax Payment Requirement.  No longer can you wait until after tax day to figure out how you are going to pay the tax debt for the year.  You must make sure that you are withholding or saving enough throughout the year to guarantee that you won’t have tax bill that you can’t pay when the return is filed.  Again, the IRS won’t just kick you out…it will or should send a letter.  But don’t risk this.  Keep withholding correctly and make sure that you have stored enough money away to pay the difference.


The relief you felt when the offer was accepted will be lessened when the IRS keeps that next tax refund and applies it to the debt.  What?  Yes, even though the amount has been accepted the IRS will and can keep the net tax refund for the year in which the offer was accepted.  Example:  On September 15, 2015 the IRS send you the acceptance letter, in October you file your 2014 return that was on extension and your refund is $3500.00 because you have done such a great job of withholding during the 2014 year.

A bit of advice: Check to see if you are over-with-holding.


The IRS won’t release that lien until the offer amount is paid in full.  Some people are on payment plans that can last as long as 24 months and under the mistaken impression that the Offer settlement letter will be the IRS’ starting gun for release of that or those liens.  They won’t do it.  You have to pay the offer amount in full.


Sometimes the IRS makes mistakes and doesn’t change the books to show a zero balance and it doesn’t release the lien(s).  You will have to follow up after you have made the last payment to ensure these two things have happened.  A good place to start is by looking at the IRS’ account transcript for each year in question and than contact the IRS to follow up on ensuring all is correct.

An IRS Lien release won’t remove the Tax Lien from your Credit Report…you must ask the IRS to Withdraw it

Antique_Mailbox-thumb-375x341-49286IRS Lien?

The IRS issues Notices of Federal Tax Lien (NFTL) with great regularity.  It’s own rules allow it to issue the NFTL if you owe more than $10,000.00.  There are a tremendous number of Americans who owe the IRS more than $10,000.00 and there are lots of NFTLs as a result.

I write and talk about the NFTL often, but there is a big issue that I think that many with people with tax lien problems miss and that is this:

If you have paid off a tax debt, discharged it in bankruptcy, settled it via an IRS Offer in Compromise, or if the IRS Statute of Limitations has wiped it out…the tax lien will be released.

When it’s released, it doesn’t exist for purposes of tying up a property etc.

But, the credit report will still show that the lien existed for several years, and will continue to damage your credit until the Fair Credit Reporting Act mandates it’s removal.

That’s not a happy thing.

The good news is that you can ask the IRS to “withdraw” the NFTL after the lien has been released and the withdrawal should remove the record from the Credit Report.

You can request the withdrawal in writing by using IRS Form 12277, Application for Withdrawal”.

In item 11, make sure and check the box that you believe that withdrawal is in the best interest of the taxpayer and the government.

You are basically making the argument that a person with a clean credit history has a higher chance of avoiding future tax problems than one with a bad credit history.  (Arguably untrue as well I suppose)

The general eligibility requirements to have the NFTL withdrawn are:

1.              It has been satisfied and released

2.              You have filed the last three years returns including all business and information return and:

3.              You are current on all estimated tax payments and tax deposits






IRS Lien Withdrawal – The $25,000.00 Rule

IRS Lien Withdrawal – Get to $25,000.00 and it can happen

IRS Lien Withdrawal - The $25,000.00 RuleThe IRS Tax Lien hurts your credit.  It really does, and everyone is afraid of it as a result.  There are a few ways to get rid of it though or even avoid it in the first place for that matter.  Read more here

This Blog Post is only about one thing.  Your ability to have the IRS withdraw a Notice of Federal Tax Lien if your debt is $25,000.00 or less.

So…a few things about this that are important to understand:

1.  The $25,000.00 amount isn’t calculated or at least it shouldn’t be calculated based on what you currently owe.  It is based on the original amount that was owed (including any portion of penalty and interest assessed back then) when the return was filed.  Your current debt is likely much higher than the original amount as a result of penalty and interest.

2.  You have to be able financially to pay the debt within 5 years OR the remaining period left in the statute of limitations on collection, whichever is shorter.  The payments you make need to made by direct debit from your account.

3.  You can’t ask the IRS to withdraw the Lien until you have made at least three payments via the Direct Debit Installment Plan you set up.

4.  If you qualify to do this, you don’t have to provide the IRS any financial information.  No work info, no property info, nothing but the account and routing numbers for the bank account you are going to use for direct debit.

5.  You can pay down the debt to $25,000.00 in order to qualify for this type of Lien withdrawal.  If you have $28,000.00 intotal tax debt and the original assessed balance is still $26,000.00, you would need at least $1000.00 in order to get to the $25,000.00 threshold and then you could pay the $28,000.00 over 72 months if directly debited or the length of time remaining in the statute period, whichever is shorter.

6.  If you are in a IRS payment plan, and the debt is paid down to $25,000.00 as a result, you can convert the payment plan to a Direct Debit Plan for this purpose.

7.  If you are in an IRS payment plan and the original debt was less than $25,000.00 you should consider converting to the Direct Debit Plan.

8.  The Baby Elephant doesn’t really have anything to do with this.

Michael Anderson, Tax Lawyer In ArizonaWritten By:

Anderson Tax Law
2158 N. Gilbert Rd. Ste 101
Mesa, Arizona 85203

Phone: (480) 507-5985
Fax: (480) 507-5988
Email: [email protected]

IRS Lien – 6 ways to deal with it

elephant leaning on mom-thumb-375x282-55228The IRS Likes to Record Liens

The IRS enjoys recording a Notice with the County Recorder that a Tax Lien exists. This is how it protects its ability to get paid as to any assets that exist. It likes to do it so much that it will file a Notice of Federal Tax Lien with Arizona County Recorder’s Office where the taxpayer lives, even if the Taxpayer has no assets.

IRS Lien Notice Recordings are Trouble

These Notices can wreak some havoc. The recording will lower the credit score making it more difficult to borrow money, they make job-hunting more complicated, and they can ruin the sale of a home.

Fortunately, there are some legal options to deal with IRS Lien recordings.

There are a number of legal methods to help alleviate the IRS lien recording. The most common ones we use are listed for your enjoyment.

1. Pay up or Negotiate

The simplest thing to do is just to pay the debt. If the debt is paid, the lien is worthless. The IRS will usually remove the lien filing when the balance is 0. Sometimes you have to push them.

If you don’t have the funds available to pay it…like most people, you may be a candidate for an IRS Offer in Compromise. This process is formal and legal and requires that you meet certain criteria.

If you do and the whole thing works out the payoff can be huge. We have successfully used this program to help our clients get rid of thousands of dollars in tax debt. As an added bonus, if the Offer in Compromise is successful and paid, the lien will be removed.

2. Lien Discharge – Removing the Lien From the Home to Facilitate the Sale

The Mortgage Company has recorded its lien before the IRS does. The Mortgage Company Lien has dibs on the equity and the IRS gets what is left if any if the home is foreclosed on or sold.

These days…this is an issue when the homeowner is trying to short sell the home.


Taxpayer owns a Mesa, Arizona home that is worth $50,000.00 less than what is owed on the mortgage. The home is listed and a buyer is found. The buyer sees the IRS lien on the Title History and is concerned that he or she may have to purchase the home subject to the Lien or at least that the Lien is going to make the purchase of the home much more difficult.

If the IRS agrees that there is nothing in it for them, it will agree to discharge the lien as to the home so that the buyer is comfortable and the sale can go through more easily. The IRS doesn’t want to get involved in a quiet title action over nothing.

The Notice of Lien remains in place as to the Taxpayer’s other assets.

3. Withdrawal of the Tax Lien.

The IRS will agree to “withdraw” the IRS Lien if it can be convinced that the withdrawal of the lien will facilitate the payment of the tax. This is difficult to do as you are trying to get the IRS to agree that no record of the lien on the County Recorder Site AND on the Credit Report will increase ability to borrow or to get a job. This involves a bit of speculation unless you actually have a credit turn down letter citing the lien or an employer notice that indicates the job requires you to be lien free.

It will also withdraw the lien if your tax debt is less than $25,000.00 – read more by visiting this page.

Withdrawing the lien therefore is a better option than releasing the lien if it can be done as the history of the lien recording is removed from the credit report. When the lien is just “released” the fact that it existed remains on the credit report for several years.

4. IRS Lien Subordination

The IRS will agree to move its priority downward in relation to other creditors and the subject property if it thinks that this will result in faster payment of the underlying debt.


Home is valued at $150,000.00 and a mortgage is recorded at $225,000.00. A bankruptcy is out of the question and the homeowner loves the home and doesn’t want to move. A modification is proposed and the bank agrees to reduce the monthly payment by $350.00

The catch? The IRS’ Notice of Lien causes the bank to hesitate about recording the new modification, as it may end up in second position to the IRS.

If the IRS can be convinced that the reduction in the mortgage payment will increase it’s monthly take from the taxpayer, it will agree to “subordinate” the lien behind the new mortgage recording.

5. Discharge the underlying debt in Bankruptcy – “Stripping the Lien”

If the underlying tax debt is discharged in a bankruptcy and the property that is subject to the lien is worth less than the tax debt amount, the lien is effectively stripped as a result of the bankruptcy discharge.


Taxpayer’s assets are worth $5000.00 total. Tax debt that meets criteria for discharge in Bankruptcy is $125,000.00. Chapter 7 bankruptcy is filed, obligation on underlying debt is discharged and lien is worth only $5000.00 at the conclusion of the case.


Taxpayer’s assets are worth $5000.00 total. Tax debt that meets criteria for discharge in Bankruptcy is $125,000.00. Chapter 13 bankruptcy is filed, obligation on underlying debt is treated as dischargeable debt but taxpayer pays value of lien or $5000.00 over the life of the case to the IRS, 3 to 5 years.

6. Just Ignore It

If the lien is ignored, the law will kill it. The IRS can collect its debt if it does so within 10 years from the assessment date. When the underlying debt has been wiped out by the 10-year statute on collection the lien goes with it.

This is more common than imagined by most. Many taxpayers arrange a payment plan or other agreement that pays less than the overall debt by the time the 10 years is up and let the statute take care of the rest.


Photo Credit: The Catholic Realist