You and your family are trying to locate to new area because you got a new job. You put your beautiful house on the market. Months and months go by and not one person seems interested. Finally, a potential buyer comes along and loves the house. As you get ready to close on the house, the deal completely falls apart. Why? You ask the real estate agent and they reply, “It is going to be very tough to sell your house, the IRS has a lien on it.”
It is very hard to sell your home if there is a lien on it from the IRS because they are the first in line behind the mortgage company to get any proceeds from the sale of the house. So, you might be asking yourself, “The IRS put a lien on my house, what can I do?” Don’t worry there are three different ways to have a lien released on your home according to the IRS. In this article, I will discuss the three different ways you can have a lien released from the IRS and in what situations you should consider them as an option.
The first way to have a lien released from the IRS, is called Discharge of Property. The “discharge” removes the lien from a specific property, so the property can be liquidated. In the example mentioned above, this person might want to apply for a Discharge of Property. A discharge may be issued if the property value is twice the amount of what is owed on the property (i.e. mortgage, property taxes, local taxes, etc.) and what is owed to the IRS. A discharge may also be issued if you partially satisfy (usually at least half) the amount owed to the IRS. Additionally, a property may be discharged if you are underwater in your mortgage and if the property was liquidated there is no value. Another way a property may be discharged if you reach a deal with the IRS, where the proceeds of what is owed is put into an escrow account for the IRS and they get their money after the sale of the property. The last way you can discharge a lien is if a deposit is made or an acceptable bond is provided to the IRS of equal value to amount owed to the IRS. In most of these circumstances, you are going to be paying the IRS either the amount you owe them or half. The only way you wouldn’t be paying the IRS, is if your house is underwater and they are willing to let that go. The benefit of getting a lien discharged is so you can sell the property or asset and the IRS can then get paid from the proceeds. Make sure if you want to file a discharge of property, don’t wait to last minute. You will want to request the discharge through the formal application at least 45 days before the transaction date. When considering a discharge make sure you consider some of the other options you might want to take mentioned at the end of this article.
The second way to have a lien released from the IRS, is called Subordination of Federal Tax Lien. Subordination does not remove the lien, but this allows other creditors to move ahead of the IRS. You should consider this option if you are having difficulty getting a loan or a mortgage. You want to request a Certificate of Subordination at least 45 days before you request the loan or mortgage, so you have a better chance at getting the funding you are asking for. Subordination becomes a viable option for you, when the IRS believes they will receive more of the amount owed than the lien placed on the previous asset. For example, you are trying to re-consolidate you mortgage so your house is not foreclosed on or you are trying to get a business loan to expand production which will then increase profits. The IRS will be willing to move down the line to make it easier for you to get your finances in order, so you can pay the IRS more of what you owe in the future.
The third way is to have the lien withdrawn, through a process called Withdrawal. This removes the public Notice of Federal Tax Lien from your asset; however, you are still liable for the amount owed. To have the lien withdrawn, you will want to complete the Application for the Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. This becomes an option when you owe less than $25,000 to the IRS or pay down the amount owed to $25,000. Also, you will have to enter a Direct Debit Installment Agreement that must pay the amount owed within 60 months or before the statute of limitations runs out. After that, you must make 3 direct debit payments and be in compliance with the IRS for three years. This means that you need to file your returns and pay the taxes on time for three consecutive years.
Before you ask to have a lien released from the IRS you want to consider some other options first. You might want to consider an Offer In Compromise, Penalty Abatement, Partial Installment Agreement or even let the Statute of Limitation run out on the amount you owe the IRS to reduce the amount owed to the IRS. To determine what is the best option and/or to make sure you give yourself the best chance your application is successful, hire a professional. Here at Taxes Made EZ we have Enrolled Agents and Tax Professionals available to help you navigate this daunting paperwork and we look at all the options to help put you in the best situation when dealing with the IRS. If you would like to have free consultation call or appointment click the link here or call our office at (856)232-0958 to schedule a free consultation so we can discuss your situation.