Although an IRS tax lien does not deduct money from your salary or bank account, it can nonetheless cause major financial troubles. When you owe taxes to the IRS, a comprehensive IRS tax lien is placed on all of your property. This lien, unlike a bank account seizure or wage garnishment, does not result in a quick collection of your tax obligation but does encumber your property, making it harder to sell or refinance once the IRS issues its Notice of Federal Tax Lien. You may file for a tax lien discharge to sell or refinance your house, but the IRS will only do so in certain situations.
What Is A Discharge in the Case of IRS Tax Liens?
An IRS tax lien discharge eliminates the lien from a specific piece of property. If you petition for a lien discharge and the IRS accepts your request, you will be able to sell or refinance the property listed in your certificate of discharge.
Anyone who buys your property without the lien discharge assumes it is liable to the IRS tax lien. If you sell your house, the buyer is not responsible for your unpaid tax liability. The IRS, though, might still confiscate the property. Because a buyer will not want to be accountable for your outstanding tax obligation, you will most likely need to obtain a lien discharge before selling your house.
To be eligible for a discharge, you must have a good reason that the IRS will approve. First, you might assure the IRS that the amount of property burdened by the federal tax lien is adequate to meet your tax obligations, even if you obtain a discharge on one piece of property.
A lien can also be discharged or dismissed if it is not attached to anything of value. If you owe more on your mortgage than your property is worth, as is common in sinking real estate markets, the IRS tax lien will be for nothing once the home is sold since the principal mortgage holder must be paid first and will receive all of the proceeds from the sale.
Most Common Reasons the IRS Grants A Tax Lien Discharge
Taxpayers may seek a lien discharge on the following grounds:
- The value of your other property susceptible to the IRS tax lien is double that of your tax due.
- You pay the IRS a payment equivalent to the total of their lien interest in the property being discharged.
- You demonstrate that the IRS’s tax lien interest in your property is worthless.
- You offer to sell your property and put the proceeds subject to the IRS tax lien into escrow.
- A third party makes a deposit or offers a bond in the amount of the IRS lien interest in the property.
Speak with a tax professional if you still have tax concerns after getting a discharge from an IRS tax lien. Your tax obligation and the IRS tax lien will not go away until you devise a tax relief strategy.
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