Tax liens are one of the most notorious complications for taxpayers facing IRS tax problems. Sometimes other collection actions such as wage garnishment, a bank levy can be handled and may be temporary problems that can be mitigated as soon as a taxpayer reaches a negotiated IRS settlement.
For IRS tax liens, in many instances, there is no tax resolutions unless the tax debt is paid in full. There are however many reasons that may open a window to an application for IRS tax lien releases. The most famous and classic examples is when the government interest in the property is zero as discussed previously.
Documentation with the IRS (as possibly with any government agencies is perhaps half of the battle. In order to present a tax lien discharge application you must provide the following:
- Name and address of the person applying for the discharge of the lien.
- Detailed description of the property for which you are applying for the discharge including location. If it is real property, you need to supply the title to the property and address where the property is located including the zip code and the city.
- Explain the method of the disposition of the property that may have necessitated the application of the tax lien discharge (such as sale of the property)
- Furnish copies of all notice of the tax lien showing the taxpayer’s name, address, and social security. Also supply the name of the office that issued the tax lien and the lien serial number as well as the date as to when the lien was filed.
- List all the loans that the property is subject to which may have priority over the government lien. Provide the name and address of the lender, the nature of the loan, the date of the agreement and the principal owed and the rate of interest. Finally you must show that there is (or there is not close family relationship of the lender).
- If you have a preliminary title report it may substitute the information in item 4 above
- List all the costs associated with the anticipated sale of the property. You can provide proposed closing statement (Preliminary Hud-1)
- Evidence of the value of the property. Certified appraisal will be needed. If you are applying for a tax lien discharge under section 6325(b)(1) furnish and estimate of the fair market value in case of a private sale with two appraisals. If the property was auctioned, provide the date and the place of the auction and how much the property was sold for. If the auction has not yet been held, provide the date and place of the action and a statement pledging that the US government has its proper priority in the proceeds of the auction price.
- Provide the address and phone number where you can be reached.
- Supply information that you think may impact the application for the discharge such as judicial proceedings.
- If you submit an application under section 6325(b)(3) that address the replacement of funds as collateral or asset subject to the tax lien instead of the original property, attach a copy of the proposed arrangements detailing the following:
- Name of escrow agent
- Name of bank account
- Condition of the escrow where the money or the proceeds of the sale will be deposited
- How the money to be disbursed from the escrow account
- Administrative cost of the escrow account
- Name of all parties involved in the escrow arrangement
- You and the escrow agent must sign the escrow agreement as well as the IRS representative.
- Give the address and telephone number of your CPA, tax attorney or enrolled agent.
- Write the following declaration, “Under Penalties of Perjury, I declare that I have examined this application including any accompanying schedules, exhibits, affidavits, and statements and to the best of my knowledge and belief it is true, correct and complete."
It is to be noted that one may envision situations where taxpayer submits an application for a tax lien discharge even if he has an installment agreement, offer in compromise or in currently not collectible status. Though these avenues offer tax relief and are sought after tax settlements, they may stop the IRS from filing a lien against taxpayers. Such tax lien releases or discharges can be achieved either through payment of the back taxes or lien discharge.