IRS Form 12277

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The layman’s interpretation of various forms of the IRS may cause taxpayers to misunderstand. One of the difficult to comprehension papers here is IRS Form 12277 that is developed to withdraw the previously filed IRS Form 668(Y). Read our short guide to figure out the rules of completing the form, cases to use the paper, and place that it occupies in the system of documents of the tax service.

Notice of Federal Tax Lien (NFTL) and IRS Form 12277

According to the title, the paper is created in order to allow a taxpayer to officially ask for the removal of the public Notice of Federal Tax Lien (NFTL). The Notice is an IRS that is responsible for registering their statutory lien interest in the property of the person paying the tax. Federal law imposes a condition that after a taxpayer is ten days behind on his tax liability, the IRS has a legal lien on his property. In other words, the IRS receives an automatic tax lien during this period. Still, in order to exercise this right legally, the IRS must record this pledge with the state where the taxpayer is registered.

Usually, the IRS sends the taxpayer an SP-504 Notice of Balance Due and then makes the NFTL. The IRS uses the tax lien to ensure timely taxpayer’s payment. When the tax lien takes effect, the person’s profit automatically goes in favor of paying off the debt to the IRS. For example, if a debtor sells any property, the funds are sent to pay off the debt. Once the person repays the debt, he/she will receive the profit from the sale as before. If the IRS makes the NFTL, they are placed in the taxpayer’s repayment queue along with other creditors. The IRS does not have the highest status. That is, if there are creditors with superior rights, the request for the NFTL will be satisfied only after them.

How does the formwork?

So, a taxpayer received the NFTL and paid off the debt, but now this is not enough. After repayment, the commercial and consumer reports may still contain information that he/she had federal lien in the past. Thirty days after the full payment of the tax, the IRS automatically “releases” the tax lien, but the data about the former debt remains in the taxpayer’s history. A federal lien may have an impact on a person’s credit, and this point is important even if someone does not want to take out a mortgage or other loan. Since some employers request an employee’s credit check, a person looking for a job may deal with the obstacle due to NFTL. Therefore, an individual wants to restore his/her financial track and eliminate the public status of a tax debtor, and the IRS provides a taxpayer the ability to clear this data from their personal credit history.

The history of the taxpayer is cleared of the facts about the past federal lien if the so-called tax lien is “withdrawn.” Withdrawing from a tax lien improves credit and provides a more favorable condition for interacting with creditors and employers. The IRS Form 12277 allows the taxpayer to update their history and to enhance their current position in the IRS.

Cases when the IRS takes appeal for consideration

There are many special cases of relations between the taxpayer and the IRS when it is necessary for the person to use Form 12277. Without going into details, we can highlight the main situations. Here are the four most common conditions in which the IRS is most likely to withdraw a tax lien:

  1. The NFTL application was filed in violation of the IRS rules or prematurely;
  2. The taxpayer entered into a direct debit installment agreement or into an installment agreement to meet the liability in the pledge, and the agreement does not establish the point of NFTL;
  3. The withdrawal that is allowed after filling out Form 12277 will make the collection of the tax easier;
  4. The taxpayer or their representative (for example, a lawyer) considers that the withdrawal satisfies the best interests of both parties, meaning the taxpayer and the government.

An application on Form 12277 will have a better chance to succeed if the taxpayer provides a valid reason for withdrawing. Furthermore, providing documentation significantly improves the chances of a positive decision of the IRS. In case of the development of the fourth point, the filler must indicate exactly how the withdrawal will bring benefits to the government. Thus, the applicant may be asked to provide additional information about his/her credit history so that the IRL makes a decision based on them. Now let’s look at the order of completing the form.

How to fill out IRS Form 12277?

Read the general instructions

On the second page of the document, you will find requirements and tips on how to fill out the paper correctly. We recommend you read the instructions thoroughly before you start filling out the Form. The document uses some terms that are necessary to understand in order to submit an application to the IRS. Errors may lead to rejecting the application or make the information that the applicant wants to indicate to be distorted.

Enter your personal data

Fill in sections 1-8 with your personal data that the document asks for. Be very careful when filling out these forms, as if one of these lines is completed incorrectly, the IRS will not be able to identify the applicant in their database.

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Fill out the information on Form 668(Y)

Section 9 deals with the NFTL and specifies the details of the Form 668(Y) that contains data of the federal lien and must be cleared through appealing Form 12277. The introduction of data on this form will speed up the process of interaction with the IRS.

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Please note that if you attach Form 668(Y) to the application, you do not need to fill out section 9. Data about Form 668(Y) must be entered only if the Form is not available.

Specify the taxpayer status

In section 10, you need to specify the current taxpayer’s status of the federal tax lien. The document offers three options: Open / Released / Unknown.

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The taxpayer chooses “Open” if he/she has not yet paid the tax debt or if the debt has been repaid within the last month. If the debt was paid more than 30 days ago and you can ensure that it does not have the mark of outstanding debt, then you need to select the “Released” point. In another case, if the filler does not know the exact status of their position in the IRS, it is necessary to select the last item, “Unknown.”

Indicate the reason for submitting Form 12277

Part 11 offers to choose one of the reasons that force the taxpayer to request the possibility of withdrawing federal tax lien. Since these points are already discussed in another section of this article, we will not dwell on them now.

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Provide additional information

In section 12, the taxpayer can attach additional data and papers such as tax filing records, confirmation of the payment plan to the IRS, and other documents. Accompanying the Form with documents will increase the chances of success because it will contain not only a request but also evidence.

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Verify the information

The last step is to sign and date the Form. Thus, the taxpayer confirms the truth of all the information that was entered above in sections 1 – 12.

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