My credit is perfect with the exception of an old tax lien that I am negotiating for settlement. The amount is $8,500. Does the lien have to be paid before I can apply for any new credit or is approval based on FICO score only? How many points does the unpaid lien knock down my scores at this time? Thanks.
This is a difficult question to answer, and the answer is that it depends upon the credit type you are applying for. Federal tax liens are one of the most negative TLs you can have on your CR. Especially an unpaid tax lien. The fact that it is still open weighs heavily on your FICO score. You may be able to get unsecured credit, such as a credit card, store account, etc., but your credit limit will most likely be lower. If you are applying for a mortgage, you will NOT be able to get one until the lien is paid in full, with evidence. If you are negotiating the amount owed/paid right now, I strongly recommend you try to negotiate the removal of the lien. It can ne done, and you have a better chance of getting it removed BEFORE you pay it, than after! Remember, a tax lien stays on your CR for seven years AFTER it is paid in full. It can stay on there indefinitely if not paid. If you can afford it, I recommend consulting with a tax attorney. In this case it is worth the expense in the long run. Good Luck
Federal Tax Lien Can a Federal Tax Lien limit my ability to travel outside the country and/or get a passport?
As far as the FICO scoring model goes, it depends on how old the lien is, etc, etc. If you apply for credit you may get an unsecured or credit card, but a lender would be foolish lend you money towards anything that could be seized by the IRS. On the other hand, your score may take a hit since the release will appear "fresh" to FICO critters.
As a note, if you are negotiating with the IRS and you obtain fresh credit you will ruin your chances for any discount. DO NOT do it until you have the release in hand.
How old is the Tax lien? The reason I ask is the following text that is contained on the Notice of Federal tax lien that was filed: What this means is that the Federal Tax lien automatically releases ten years after the filing date. Get a copy of the Lien and see what the date is in Column E and let's see if it's worth fighting it or just letting the Lien die of its own accord. Unfortunately, the CRA's don't seem to either know, care or understand this little fact and I have been looking for someone who can sue their butts over it. Under FCRA, since the Release of Lien is automatic by Law the release should be shown on the CRA - unfortunately, the only time the IRS issues a Release of lien is when you actually pay the debt, not when it passes SOL.
See, www.irstax.com/irslien.htm IRC §6322 provides that the lien will continue until the assessed tax is satisfied or becomes unenforceable by reason of lapse of time. Thus, once the tax is paid, or otherwise abated by the IRS, the lien is no longer enforceable. IRC §6325(a) states, in relevant part, that "the Secretary shall issue a certificate of release of any lien . . . on which (1) the Secretary finds that the liability for the amount assessed, together with all interest in respect thereof, has been fully satisfied or has become legally unenforceable; . . . " If the tax is not paid, the lien remains in force until the statute of limitations for collection expires. IRC §6502 provides that the statute of limitation for the collection of tax is 10 years after the date of assessment. However, the collection statute may be extended by a waiver signed by the taxpayer (such as the one signed with the submission of an offer in compromise) or by the suspension of the statute by various reasons enumerated in IRC §6503, including bankruptcy proceedings and absence of the taxpayer from the United States. A bankruptcy proceeding extends the collection statute for the period that the taxpayer is in bankruptcy, plus an additional six months. [IRC §6503(h)]. If the taxpayer leaves the U.S. for a continuous period of at least six months, the collection statute is suspended for the time of his absence. [IRC §6503(c)]. By agreement (rather than by statute) the offer in compromise extends the collection statute for the length of time that it takes IRS to make a decision on the offer plus an additional one year. It should be noted, however, that there are exceptions - or seeming exceptions - to the general lien duration rule. One of them is the bankruptcy exception. If, for example, the tax is discharged in bankruptcy, one would assume that the tax has become legally unenforceable and that the underlying tax lien is extinguished as well. Not so. In In re: Isom, [901 F2d 744 (1990, CA9)], the court stated that IRS wasn't required to release tax liens when the underlying debt was discharged. The court went on to state that while IRS could no longer collect the tax as a personal liability, the liens remained enforceable in rem. In U.S. v. Uria, 75 AFTR 2d 95-2258 (1995, DC FL), the court stated that the IRS' pre-petition liens survived the debtors' Chapter 7 bankruptcy and were enforceable, even though the underlying tax liabilities were discharged. The court went on to rule that IRC §6325(a)(1) did not require the IRS to release its liens upon discharge of the debtors, that the dischargeable debt wasn't necessarily unenforceable and that the discharge did not extinguish IRS's rights against the liened property. The court cited another case, In re Dillard, 118 B.R. (Bankr. N.D. Ill., 1990) which had also addressed the issue. See also, www.ca11.uscourts.gov/opinions/ops/19942496.OPA.pdf pay attention to pages 18 and 23.
I might have a case I have NFTL that has expired in January. In addition and to my chagrin, paid debt days after expiration. Saint Murphy wants me to pay all debts. Disputed lien and CRAs would not investigate due to previous dispute. Sent copy of NFTL with column E as documentation. Waiting for reply. Then will ask for some input. Equifax has listed "reinvestigation in process" literally for years. Currently, dealing with another issue. Absence from state and Tolling. Please see my post "N.H. SOL law - Toll" on infinitecredit.com. Tried to post here but no "manage attachment button" and could not post Avery decision. Case with CA is going to arbitration.
Called Experian and they stated "will report for 7 years from date of release". I asked about the "date of assessment" and they said it does not apply. Then I found in the FCRA: §§ 605. Requirements relating to information contained in consumer reports [15 U.S.C. §§ 1681c] (a) Information excluded from consumer reports. Except as authorized under subsection (b) of this section, no consumer reporting agency may make any consumer report containing any of the following items of information: (3) Paid tax liens which, from date of payment, antedate the report by more than seven years. Note: CRAs doesn't know statutory required "date of payment" to run the clock on the reporting period of seven years. CRAs use "filing date" (date filed with courthouse) or "date of release" as "date of payment".
Federal tax liens do report for seven (7) years from date of release/payment in full. You must be careful to not confuse "Release" with reporting criteria. Unfortunately, tax liens are one of the nastiest re: reporting length...
It looks like you found your answer. If the date of payment is considerably different from the release date, send the proof of payment to the CRA.
However, the "Date of Release" is usually the same as "Date of (full) Payment", so the seven year period "should" start at the same time.
It is my understanding California law only allows 10 years reporting total. Time to lobby for change or author a "consumer protection act" and get signatures for an initiative. Think I'll post a Consumers Most Wanted List (shorter SOL, higher fines, et.) on the forum for ideas.
