The blanket IRS tax lien automatically applies to all of your property whenever you owe taxes to the IRS. This lien does not result in immediate collection of your tax debt like a bank account seizure or wage garnishment, but it does encumber your property, making it difficult to sell or refinance once the IRS files its Notice of Federal Tax Lien. If you need to sell your property or get rid of the lien, you need to request a discharge from the IRS.
How to Get a Tax Lien Discharged
Once the IRS records a lien, generally by filing it against your real property at the county recorder’s office, any subsequent purchaser takes the property subject to the lien. Since a buyer is not going to want to be responsible for your delinquent tax debt, you will likely need to negotiate a lien discharge before you can sell your home.
To get a discharge, you must have a valid basis that the IRS will find acceptable. First, you could give the IRS assurance that the amount of property encumbered by the federal tax lien (which extends to all of your property) is sufficient to cover your tax liability, even if you receive a discharge as to one piece of property. This argument will generally succeed if the value of your remaining property after the discharge is at least twice the value of your outstanding tax debt combined with any debts that have priority over the IRS tax lien.
You can also agree to pay off the IRS to release the lien. You will have to pay at least an amount equal to the value of the lien they are discharging. For example. if your home is valued at $400,000, and you still owe $300,000 on a mortgage, the IRS tax lien could be worth up to $100,000, assuming you owe this much or more in tax liability. You would have to pay the IRS $100,000 to get them to agree to release the tax lien.
You can also get a lien discharged if it doesn’t attach to any value at all. If you owe more on your mortgage than your home is worth—which often happens in declining real estate markets—the IRS tax lien won’t be worth anything after the home is sold because the primary mortgage holder must be paid first and will receive all the funds from the property sale.
Why You Need a Comprehensive Tax Relief Plan
Keep in mind that the lien discharge only applies to a specific piece of property. The IRS tax lien remains in effect an all of your other property, and you are still responsible for the tax liability, regardless of whether the lien is discharged.
You can also request a lien subordination, which is useful if you just need to refinance your home and the IRS lien is preventing a lender from agreeing to refinance your loan. However, a lien discharge or subordination does not solve your tax debt problems because you still owe the tax and could have to deal with other IRS collection actions. You should also consult with a tax relief attorney to see how you can develop a plan to eliminate your tax problems for good.