Federal Tax Liens to be Eliminated From Credit Reports and Related FICO Scores

For taxpayers with federal tax liens currently filed against them, good news is on the horizon. The three major national credit-reporting agencies – Equifax, Experian and TransUnion – recently announced new standards for their data collection as it relates to public record data such as civil judgments and federal tax liens. In a nutshell, the agencies will no longer collect/use public record data unless it includes certain minimum information, including social security number and date of birth. Since federal tax liens do not normally include this information on the face of the lien filing, the federal tax lien information will, for the most part, be eliminated from future credit reports issued by these agencies and such data will no longer be factored into the calculation of related FICO credit scores for most consumers.

These new data collection standards will take effect on July 1 of this year and will apply to both new and existing public records. As such, the three agencies will soon begin the process of removing most federal tax liens from their existing reports/records, resulting in immediate FICO score improvements for affected consumers.

Notwithstanding the implementation of these new, consumer-friendly data collection standards, federal tax liens will continue to have an adverse effect on the subject taxpayers. This is due to the fact that the federal tax lien will still be on file in the local public records for all to see, allowing other parties such as employers and/or lenders to review the tax lien information as part of their due diligence efforts. In addition, an outstanding federal tax lien will prevent the liened taxpayer from selling his or her real property unless a resolution is reached with the IRS. Such a resolution usually involves the IRS conditionally releasing the federal tax lien to allow the sale to go forward in exchange for a promise from the closing agent to wire funds to the IRS at closing in the amount of the federal tax liability.