When a taxpayer has an IRS lien placed against them, resolving the lien is of the utmost importance in reducing its impact on the taxpayer, especially in regards to the taxpayer’s financial situation and credit. If a taxpayer has the means and can pay off the balance of the tax lien, the best option is to request a tax lien release. If the taxpayer does not have the financial ability to pay off the tax lien, yet they need to lessen the effect of the tax lien on an asset, in some limited cases they may request a lien subordination, meaning that the IRS is willing to let a creditor have a higher priority in claiming an asset than the IRS lien.
The release of an IRS lien is the clearest indication that a taxpayer is no longer obligated to the debt that caused the lien to be applied against them. A release is primarily granted when the debt has been paid in full. This also includes debts that have been negotiated and paid in full for less than their original amount. The IRS also may be willing to release a tax lien based on a provision that if the remaining assets not released from a lien are at least twice the value of the tax lien plus any other debts (such as mortgages, taxes, and/or mechanic liens) which existed prior to the Notice of Tax Lien filing. Another relatively less well-known way to obtain a lien release occurs when the statute of limitations on the collection of the tax debt occurs. The IRS has ten years from the time the debt is recognized to collect the debt. In order to obtain a lien release, the taxpayer must complete IRS Form 14135, Application for Certificate of Discharge of Federal Tax Lien.
Subordination of a tax lien involves the IRS allowing a creditor to have first priority, or claim, towards an asset while the IRS takes a lower priority. In other words, if an asset has to be sold, any proceeds would first go to the lienholder who was granted the higher priority. Any remaining proceeds would then go towards paying the IRS lien. Finally, if there are any proceeds remaining, they would go to the taxpayer. The IRS will usually grant a subordination if by doing so it will be easier for the taxpayer to pay the tax debt. For example, if the taxpayer has a mortgage on a property, and by refinancing the property they can obtain cash from a new, higher mortgage that can be used to pay off the mortgage debt, then the IRS maybe willing to subordinate the tax lien. In order to request subordination of a tax lien, the taxpayer must complete IRS Form 14134, Application for Certificate of Subordination of Federal Tax Lien.
Either a tax lien release or a tax lien subordination can be beneficial to a taxpayer as they can help lessen the detrimental burden that the tax lien can have on a taxpayer’s financial well-being. If you currently have the unfortunate experience of having a tax lien, investigating either of these options may help lessen the tax lien’s impact on your financial situation. Contact or call RJS LAW at (619) 595-1655 to schedule your consultation today.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.