(1) The IRS has increased the minimum amount of tax debt that prompts the filing of a tax lien from $5,000 to $10,000.
(2) If you owe less than $25,000, the IRS will withdraw the lien if you set up a direct debit installment plan. This means they automatically draft money from your bank account every month. You have to pass a probationary period of three months (and three payments). The IRS will then withdraw the lien.
(3) Even if you owe less than $25,000 and have made at least three payments under a direct debit plan, you still have to request that the lien be withdrawn. You should submit Form 12277 Application for Withdrawal of Filed Notice of Federal Tax Lien, although any written request that provides the necessary information likely will suffice.
(4) Even after all this, you want to contact the credit bureaus to be certain that your records have been updated.
(1) Pay off the tax debt in full.
(2) Post a bond.
(3) Request a partial release
(4) Offer in Compromise
This is the “pennies on the dollar” commercial on radio or overnight television. The idea here is that you offer the IRS what you have, plus a portion of your future earnings, to pay-off a tax debt. If you still have years to go in the workforce and have reasonable earnings potential, you likely will not qualify for “pennies on the dollar.” The IRS can also see your earning power over the next few years, and they will be loathe to let you walk away. However, if you have modest assets and are disabled, retired or near retirement, the OIC may pack a punch.What did I recommend to my client? He owes more than $25,000, and enough more where I cannot have him pay-down to $25,000. He is young enough, and has enough earning power, where any offer in compromise would yield little (if any) more benefit than a payment plan. In that case, I would prefer to remain in a payment plan, as an offer will toll the statute of limitations. That takes away my last ditch option…
(5) Run the 10-year statutory collection period
The IRS has 3 years to audit your return and 10 years to collect. Sometimes they overlap, and the two periods run concurrently. Think of running the bulls in Pamplona for 10 years, and you can visualize this tax strategy. Still, sometimes it works, which is why tax advisors continue to talk about it.
The trap here is “tolling,” which means that the collection period is suspended. Toll enough and the 10 years can become 15 or 20 years. What causes a toll? A bankruptcy application causes it. So does an offer in compromise.