IRS Form 12277: Request to Withdraw Form 668(Y) Filing

Summary

The IRS Form 12277, Application for Withdrawal of Filed Form 668(Y), is used to request the withdrawal of a federal tax lien filed by the IRS due to unpaid tax liabilities. The form applies when you need to remove the public lien notice and qualify for withdrawal. To be eligible, certain criteria must be met, such as premature filing of the lien, entering an installment agreement, or ensuring the withdrawal leads to tax payment. It’s recommended to consult with a tax professional to determine your eligibility and for assistance in completing the form.

The IRS will review your application and notify you of their determination, potentially leading to the withdrawal of the lien or further communication for additional information. There are several common pitfalls to avoid when dealing with tax liens and Form 12277, such as making errors on the application, not having an adequate reason, not responding to the IRS, and ignoring the form instructions.

IRS Form 12277 Application for Withdrawal of Filed Form 668(Y)

The IRS may file a lien if you have unpaid tax liabilities. A lien is the government’s legal claim against your assets and property. When the IRS takes this step, they will file Notice 668(Y), Notice of Federal Tax Lien.

If you need to request a withdrawal of a tax lien, you will use IRS Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. This form may apply when you need to remove the public lien notice and you qualify for withdrawal.

When would this form apply to your situation? And how does the tax lien withdrawal process work? Keep reading to find out all the details of IRS Form 12277, including how to get a tax lien removed, or contact the Timothy S. Hart Law Group, P.C. for help today.

Understanding Tax Liens

First, let’s walk through what a tax lien means and when you might experience this consequence of unpaid taxes. The IRS may file a federal tax lien against your property, which essentially is public notice that they have an interest in your assets due to an outstanding tax debt.

A lien can only exist after the IRS has assessed taxes against you and sent you a bill that outlines your liability. If you neglect this bill or fail to pay off your debt on time, a lien could be a possibility.

The Notice of Federal Tax Lien then alerts other creditors that the IRS has a right to your property. Note that a tax lien is not the same as a tax levy, which is the IRS’s actual seizure of your assets.

A tax lien relates to these components of your finances:

• Assets, such as your property and securities
• Your ability to get credit
• Business property
• Continuation after filing for bankruptcy

Although tax liens do not appear on your credit report, they affect your ability to get credit because if a creditor sees a lien, they generally will not let you use your assets as collateral.

How to Remove a Tax Lien

The IRS outlines a few ways you can get rid of a tax lien on your property:

• Pay off your outstanding tax balance as soon as possible. The IRS will then release the lien within 30 days of full payment.
• You may be eligible to apply for a certificate of discharge of your property if the property under the lien is at least twice the value of the tax liability, the IRS’s interest in the property has no value, and other situations.
• Withdrawal of the lien using Form 12277. Usually, this would only be granted in certain circumstances, discussed in the next section.

Work with a tax professional regarding your tax lien strategy and IRS lien release form so you know it’s being submitted correctly.

Eligibility Criteria for Tax Lien Withdrawal

The IRS outlines certain eligibility criteria to be able to withdraw a lien using Form 12277. Here is an overview:

• The notice of federal lien was filed prematurely or outside of IRS procedures
• You entered into a payment plan to cover the debt
• The withdrawal will lead to the payment of the tax
• The withdrawal is in the best interest of all parties — you and the government

The IRS also added options for withdrawal in 2011 as part of its Fresh Start initiative. For example, taxpayers now can qualify for withdrawal if they convert their installment agreement into a direct debit agreement. Eligibility for this form of withdrawal includes:

• You owe $25,000 or less.
• Your installment agreement via direct debit pays the full amount within 60 months, or before the statute of limitations expires, whichever is earlier.
• You are otherwise in full compliance with tax payment and filing requirements.
• You’ve made three consecutive payments via direct debit.
• You have not defaulted on any direct debit installment agreements.

Withdrawal also may be granted after the lien’s release, when you have satisfied the tax liability and are otherwise in tax compliance over the last three years and are current on tax payments.

Overview of IRS Form 12277

IRS Form 12277 is a fairly short and straightforward form. However, many factors go into whether you should send this form and how to complete it. Form 12277 should be used when you are applying for a withdrawal of a federal tax lien.

Because you have to select your reason for requesting the lien withdrawal, you need to ensure that you are eligible. Talk to a tax professional about your situation when you’re not sure if you can apply for withdrawal.

How to Complete Form 12277

Here is a step-by-step look at how to complete Form 12277 properly:

Enter Your Basic Information

First, the form asks you to provide personal details such as your name and Social Security number, or EIN if an employer, and your address.

Attach Form 668(Y)

Form 12277 asks for a copy of the Form 668(Y) you received from the IRS, which is the Notice of Federal Tax Lien. If you don’t have a copy of this document, you can provide the serial number, date, and recording office information.

Indicate the Lien Status

Next, indicate the current status of the tax lien. Your options are open, released, or unknown. Ask your tax advisor if you’re not sure about your lien status.

Provide a Reason for Your Request

The next section, line 11, asks you to provide your reasoning. Your options are:

• The notice was filed prematurely or was not in line with IRS procedures.
• You entered an installment agreement to take care of your debt.
  • You are under a direct debit installment agreement.
• Withdrawal of the lien will lead to tax payment.
• You or your tax representative believe withdrawal is in the best interest of you and the government.

Explain Your Reasoning

The next section is a space where you can explain why you are making this IRS lien payoff request, expanding on the reason you selected in the prior section. You may also attach additional documentation that backs up your reasoning.

Sign and Date the Form

Don’t forget to then sign and date the form at the bottom. Otherwise, it is not complete.

Mail the Form

Mail your completed application to the applicable IRS office that has been assigned to your case. If you’re not sure, you can send it into your applicable office listed on Publication 4235, Advisory Group Addresses. Make sure to direct your application to IRS, ATTN: Advisory Group Manager, followed by the address, according to the form instructions.

What Happens After Submitting Form 12277?

The IRS states that they will reach out to you to let you know their determination after review. Response times may vary, but you should hear back within a couple of months. They also may ask you for additional details.

One of two things will happen after the IRS reviews your application:

• The IRS will agree to your request and will file Form 10916(c), Withdrawal of Filed Notice of Federal Tax Lien.
• The IRS will not agree to your request, and they will notify you that the lien will not be withdrawn.

In the latter case, you will receive information about your right to appeal the IRS’s decision not to withdraw. If the IRS files a withdrawal of the lien, you can request that they also notify other interest parties, such as your creditors, about the withdrawal.

Impacts of a Lien Withdrawal

There are many reasons you may want to pursue a withdrawal of a tax lien if you qualify. For example, creditors are able to see the lien since it’s public record, so a lien could impact your ability to get approved for credit.

You don’t want the tax issue to progress as far as asset seizure. A lien indicates that the government could issue a levy on your assets to cover your tax debts. Do what you can to avoid the IRS from actually seizing your property.

An important note: tax liens used to appear on your credit report generated by the major credit agencies. However, since 2018, tax liens no longer appear on credit reports (though other types of liens do, such as bank or real estate liens).

However, tax liens are still public record. So, creditors can still see them, and they could impact your ability to get new credit. Ask an expert if you have questions about ensuring your lien has been withdrawn from the public records.

Common Pitfalls to Avoid With IRS Form 12277

There are several common mistakes taxpayers make when dealing with tax liens and Form 12277. Avoid these pitfalls when going through the process:

• Making errors on the application: Inaccurate or missing information can lead to delays or rejections when you submit Form 12277. Double-check all your details, explanations, and documents before applying.
• Not having an adequate reason: The IRS will only approve your request if your reasoning aligns with their eligibility criteria. Make sure you qualify for withdrawal, and provide enough reasoning to explain your situation thoroughly in your application.
• Not responding to the IRS: Upon reviewing your application for lien withdrawal, the IRS may contact you for additional information to support your request. Don’t ignore these communications. Respond as quickly as possible and provide what they ask for.
• Not reading the form instructions: Many questions about how to fill out Form 12277 can be answered simply by reading the IRS’s instructions provided with the form. Read through each detailed section to ensure you are providing exactly what they ask for and are taking the right steps. Otherwise, your request could be delayed or denied.

Sometimes issues arise that you can’t predict or avoid. But being proactive and thorough will ensure you get your Form 12277 submitted properly to initiate the withdrawal process.

Seeking Help with Form 12277

Getting help with a request for tax lien withdrawal is always wise, especially because tax laws can be complex and confusing. You never want to make a mistake in the process that will lead to a denial of your application or a delay in the process.

Talk to the team at Timothy S. Hart Law Group when you’re ready to work with an expert. We will review your situation and help you complete Form 12277 properly.

Contact our office to set up a consultation.

FAQs About IRS Form 12277

Am I Eligible for Tax Lien Withdrawal?

Not everyone will qualify for tax lien withdrawal. Review the IRS’s eligibility requirements before applying, including being tax compliant for the last three years, paying off your debt, or setting up a direct debit installment agreement.

Will Removing a Tax Lien Improve My Credit Score?

Tax liens are no longer on your credit history. So, withdrawal should not impact your credit score. However, tax liens are public records, so creditors can see them and it may impact your ability to get credit approval.

How Soon Will I Hear from the IRS About Form 12277?

Response times will vary based on your situation and details. However, expect a response from the IRS — whether an acceptance, denial, or request for additional information — within a couple of months, typically four to six weeks.

What If My Form 12277 Application is denied by the IRS?

Pay close attention to the notice the IRS sends you regarding the denied request. They must provide appeal information so you can initiate that process if you don’t agree with their decision.

What Documentation Do I need for Form 12277?

You need to provide a copy of your Notice of Federal Tax Lien document. Additionally, it’s a good idea to attach any documents that will support your request and explanation. Ask a tax professional when you’re not sure what to include.

How Did the Fresh Start Program Change Tax Lien Withdrawals?

In 2011, the IRS’s Fresh Start initiative expanded the eligibility requirements for Form 12277. Following that year, taxpayers who enter into a direct debit installment agreement can now apply for tax lien withdrawal.