Imagine you want to sell a home but a federal tax lien for delinquent taxes has been filed against it. You do not have the money to pay off the lien, and even selling the house will not generate enough money to pay it, or it will not generate any money at all to pay off the lien after paying the mortgage. What can you do?
Discharge of property
A “discharge” removes the lien from specific property. There are several Internal Revenue Code (IRC) provisions that determine eligibility. Most taxpayers will be eligible for a discharge of the lien when they sell their home. However, the IRS may want all the equity in the home if the lien is not fully paid. There is an application process for discharge of lien that you tax attorney can file for you. The application requires that you provide the IRS with information and copies of documents to get this tax relief.
“Subordination” does not remove the lien, but allows other creditors to move ahead of the IRS, which may make it easier to get a loan or mortgage. Again, there is an application process to request that the IRS allow a property owner to refinance the property.
A “withdrawal” removes the public Notice of Federal Tax Lien and assures that the IRS is not competing with other creditors for your property; however, you are still liable for the amount due.
Two additional Withdrawal options resulted from the 2011 Fresh Start initiative.
One option may allow withdrawal of your Notice of Federal Tax Lien after the lien’s release. General eligibility includes:
Your tax liability has been satisfied and your lien has been released; and also:
- You are in compliance for the past three years in filing – all individual returns, business returns, and information returns;
- You are current on your estimated tax payments and federal tax deposits, as applicable.
The other option may allow withdrawal of your Notice of Federal Tax Lien if you have entered in or converted your regular installment agreement to a Direct Debit installment agreement. General eligibility includes:
- You are a qualifying taxpayer (i.e. individuals, businesses with income tax liability only, and out of business entities with any type of tax debt)
- You owe $25,000 or less (If you owe more than $25,000, you may pay down the balance to $25,000 prior to requesting withdrawal of the Notice of Federal Tax Lien)
- Your Direct Debit Installment Agreement must full pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier
- You are in full compliance with other filing and payment requirements
- You have made three consecutive direct debit payments
- You can’t have defaulted on your current, or any previous, Direct Debit Installment agreement.
For help with clearing tax liens so you can sell or refinance property, call Jeffrey R. Siegel, your Kansas City tax attorney at (913) 735-4829.