The IRS implemented a new policy in 2011 that permits removal of federal tax liens from credit reports much sooner than their normal exclusion period of 7 years from date paid.
The IRS will now formally withdraw a tax lien if, and only if, the taxpayer pays it in full or enters into an installment program that will eventually result in full payment. Once this has been accomplished the taxpayer must request that a withdrawal be filed, which can be done using IRS Form 12277 (Application for Withdrawal of Filed Form 668(y), Notice of Federal Tax Lien). The response you will get from the IRS will come via IRS form 10916(c) (Withdrawal of Filed Notice of Federal Tax Lien.) That form is your golden ticket.
The Consumer Data Industry Association (CDIA), which is the trade association of the credit reporting agencies and the author of their joint credit reporting manual, has gone on record and confirmed that all three of the major credit reporting agencies (Equifax, Experian and TransUnion) will remove IRS tax liens that have been withdrawn. Consumers can facilitate the removal of the tax lien from their credit reports by contacting the credit reporting agencies, disputing the lien, and providing a copy of the withdrawal form. Once the credit reporting agencies confirm withdrawal, they will delete the lien from your credit reports.
Settlements
The new withdrawal policy does not apply to offers in compromise, more commonly referred to as tax settlements. A settlement occurs when you and the IRS cut a deal for less than you actually owe. Because a settlement does not result in full payment to the IRS, the lien will simply be released rather than withdrawn. And you guessed it, the credit reporting agencies do not remove released tax liens until seven years has passed from the release date.
