Tax Law Article

Federal Tax Liens

By: Clark, Campbell, Lancaster & Munson, P.A.

Q: The IRS has filed a tax lien against me, and I would like to sell my home. What should I do?

A: If a person does not pay his taxes, the IRS will usually record a Notice of Federal Tax Lien in the public records of the county in which the taxpayer resides. The Notice creates a lien against any property owned by the taxpayer in that county. The Notice is valid for 10 years and 30 days after the tax is assessed unless the IRS re-records the lien in the public records or the statutory period for collection has been extended. After that period expires, the federal tax lien is “self-released.”

While the lien is in effect, the taxpayer has a few options to address the Notice of Federal Tax Lien. The first option would be to pay off the taxes owed and receive a Certificate of Release of Federal Tax Lien.

The second option would be to request from the IRS provide a “property-specific” release by a Certificate of Discharge of Property from Federal Tax Lien. This option is feasible in a short sale in which the seller will take no net proceeds at closing. But if the taxpayer takes title to the property after the Certificate of Discharge of Property from Federal Tax Lien is issued, the Certificate becomes void. This prevents the taxpayer from fraudulently obtaining a discharge, typically by conveying the taxpayer’s home to a friendly third party and then having the third party convey the property back to the taxpayer free from the federal tax lien.

The IRS may also withdraw the Notice of Federal Tax Lien based upon various grounds such as if the filing of the Notice was premature or otherwise not in accordance with administrative procedures, or if the IRS and the taxpayer enter into an installment payment plan.

Unlike most debts, a federal tax lien can be enforced against homestead property, and a federal tax lien against one spouse can be enforced against that spouse’s interest in the property both during and after that spouse’s lifetime.

If you are confronted with a federal tax lien and would like to sell your home, it may be wise to consult with an attorney to help you navigate through the issues to ensure your interests are protected and your closing goes smoothly.

The January 14th edition of “The Law” will focus on planning ahead for your 2016 taxes.

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