IRS Speeds Lien Relief

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The Internal Revenue Service (IRS) is giving struggling American homeowners a gift this holiday season. No, they aren’t canceling homeowners’ tax debt. They are, however, making it easier for distressed homeowners to avoid having a federal tax lien block the sale or refinancing of a home. They are also expediting the process for requesting a discharge or subordination of a tax lien.

?We don’t want the IRS to be a barrier to people saving their homes. We want to raise awareness of these lien options and speed our decision-making process so people can refinance their mortgages or sell their homes,? said IRS commissioner Doug Shulman.

The IRS issues more than 600,000 federal tax lien notices every year. Currently, there are more than 1 million federal tax liens, tied to real and personal property, outstanding. The IRS is not the only government entity interested in lowering the number of outstanding tax liens. Cities from Phoenix to Plainfield are trying to find ways to collect on or sell tax liens in order to raise much needed funds as budgets become tighter.

The IRS makes a legal claim on a property by filing a Notice of Federal Tax Lien. It serves as a public notice to other creditors that the federal government has a claim on a property. The federal claim is usually, but not always, the senior lien. In some cases, a federal tax lien can be made secondary to another lien if the IRS determines that taking a secondary position will ultimately help with collection of the tax debt. The process of taking a secondary position is called subordination. Taxpayers who are selling or otherwise giving up ownership of a property may apply for a certificate of discharge of a tax lien if the price is less than the mortgage lien and the mortgage lien is the senior lien.

Taxpayers or their representatives may apply for a subordination of a federal tax lien if they are refinancing or restructuring their mortgage. Publication 784: How to Prepare an Application for Subordination of a Federal Tax Lien, provides taxpayers with instructions for applying for a lien subordination certificate while Publication 4235: Collection Advisory Groups, provides mailing addresses the request should be sent to for processing. Without lien subordination, taxpayers may be unable to borrow funds or reduce their payments. Lending institutions generally want their lien to have priority on the home being used as collateral.

A federal tax lien can make it difficult to sell or give up ownership of a property, as well. The IRS may issue a certificate of discharge of a tax lien if the sale price is less than the amount owed on a senior mortgage lien. The IRS may also issue a certificate of discharge in other circumstances if the taxpayer has sufficient equity in other assets, can substitute other assets, or is able to pay the IRS its equity in the property. Taxpayers should follow the directions in Publication 783: Instructions on How to Apply for a Certificate of Discharge of a Federal Tax Lien when applying for a tax lien discharge. There is no form to submit however a typed letter of request must accompany certain documentation and be mailed to the appropriate address listed in Publication 4235.

The IRS urges taxpayers to contact the agency’s Collection Advisory Group early in the sales or refinancing process so that it can begin work on their requests for subordination or discharge of a federal tax lien. People sometimes delay informing lenders of tax liens which only serves to further delay the transaction.

?We realize these are difficult times for many Americans,? Shulman said. ?We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.?

You can hear an audio version of the announcement here. (MP3)