Your client wants to sell or buy valuable property, and you have patiently answered questions and jumped through all the hoops, but you know that if the seller cannot convey clear title after the contract is signed, all inspections completed and conditions met, there will be no deal. You get the title commitment and realize for the first time that the seller has big tax problems, and the IRS has slapped federal tax liens on the property for one or more years. The deal is in jeopardy.
Will the IRS release the lien to allow the sale?
The IRS will take the remaining equity after senior liens, commissions and other expenses called for by the contract are paid, and it will discharge the lien and allow clear title to pass. No matter how big the lien is, the IRS will take less than the lien amount because the value of the IRS’s interest in the property is limited by the amount of equity in the property. For example, the IRS has a lien totaling $203,000. The sale price is $215,000. Mortgages and liens senior to the IRS lien amount to $135,000. Settlement costs are $15,000. This leaves $65,000. The IRS will discharge the lien after it receives and applies the $65,000 in partial satisfaction of the tax liability, even though there remains an outstanding tax debt of $138,000. If only one spouse owes the tax, in cases of Tenancy by Entireties property, the IRS is generally paid one-half of the proceeds in partial satisfaction of the liability secured by the tax lien.
What if there is nothing left for the IRS?
The IRS will discharge the lien when it is determined that its interest in the property has no value. This occurs when the debts senior to the federal tax lien are greater than the fair market value of the property or greater than the sale value of the property.
What is the Procedure to Get the Income Tax Lien Discharged?
IRS Form 14135 is an Application for Certificate of Discharge of Property from Federal Tax Lien. There are several important things to remember. 1) Get professional help in completing this form. It may not look complicated, but there are many pitfalls. 2) Allow sufficient time for the IRS to review the Application and request and obtain additional information. The escrow period should be at least 45 days. 3) You must submit numerous documents with the application, including a copy of the contract and escrow agreement, settlement statement, a professional appraisal, county valuation and copy of the deed.
If you or a client need help clearing federal tax liens on property, call Jeffrey R. Siegel, your Kansas City Tax Attorney, at (913) 735-4829. I can also help with offers in compromise, levies, garnishments, installment agreements, tax delinquencies, innocent spouse relief, injured spouse relief and other solutions when you cannot pay your taxes.