Tax Lien Discharge
What is Tax Lien Discharge?
A tax lien discharge removes the tax lien from the specific property to which it was attached. The IRS grants a lien discharge once the tax debt is satisfied. If the IRS accepts your request for a lien discharge, they will give you a Certificate of Discharge. A Certificate of Discharge allows you to refinance or sell the property that had the tax lien attached to it.
What is a Tax Lien?
A tax lien affects your financial assets, personal property and your real estate property. Tax liens can vary based upon your individual situation. They are the government’s way of protecting their interest in case you fail to pay your tax debt in a timely manner. If you ignore the tax lien by not contacting the IRS and resolving your tax debt, the IRS can then place a tax lien on your property and seize or sell it. By resolving your tax debt, you can have the tax lien discharged.
When and Why Should I Apply for a Lien Discharge?
You should apply for a tax lien discharge if you wish to refinance or sell your property that has the federal tax lien attached to it. Although it is still possible to sell or refinance the property without a Certificate of Discharge, the property would remain attached to the IRS tax lien. The new owner would not be subject to paying the tax debt; however, the IRS would still be able to place a levy on the property and seize it. Since most potential buyers would not be open to liability, the presence of a tax lien on the property would likely discourage any buyers from purchasing the property. Therefore, a lien discharge would be advantageous in the selling or refinancing of the property under a tax lien. For more information on IRS problem resolution, please visit our pages on that topic.
How Can I Apply for a Lien Discharge?
You can apply for a tax lien discharge by demonstrating to the IRS that their granting of the lien discharge would not jeopardize their interest in the property. In other words, the IRS would still be paid the amount owed without the use of the tax lien. There are a number of forms you must fill out demonstrating the appraised value of the property, a description of the property and a basis for the discharge. There are a number of reasons that the IRS may approve your property for discharge including:
- Proof that you have other valuable assets attached to the lien.
- You are able to sell your property and provide the proceeds to the IRS.
- You are able to prove that the value of the property is worthless to the IRS. For example, if you owe more money on the property than an appraisal states it is worth.
- You are capable of paying the IRS an amount equal to the interest they have on the property.
What Happens When the IRS Approves My Application?
If the IRS approves your application for a tax lien discharge, they will send you a Certificate of Discharge for that specific property. Upon receiving this discharge, you can list the property for sale without the attached liability of a tax lien on said property. With a discharge, you can refinance your property and use the extra cash from the refinance toward paying your tax debt or you may sell your property outright and use the proceeds of the sale towards paying off the debt.
However, this is not the entire solution tax debt problem. You will still owe the tax debt as well as any interest or penalties attached to the debt by the IRS, even if your property is approved for the discharge. In addition to still owing the debt, the discharge only applies to the specific property named on the certificate. Any other property attached to the lien will remain attached and subject to levy if the tax debt is not paid.
If you are looking to refinance or sell property attached to a federal tax lien, you may first verify that your property is eligible for discharge of that tax lien. There are a number of factors to be considered when selling or refinancing property under a tax lien. Applying for a tax lien discharge is one of your many options. It is best to consult a tax professional to explore your options and see which option best fits your situation. Give us a call today for a consultation to see if a lien discharge will work for you.