The IRS typically sends a notice of federal tax lien as a final demand for payment of unpaid taxes. If taxes still go unpaid, they will place a federal lien on the personal property of the delinquent taxpayer.
A tax lien against property comes with severe consequences, including loss of a home or business and restrictions on the sale of property. Fortunately, you can apply for a federal tax lien discharge.
We will discuss what a federal tax lien discharge is, who qualifies, and how to apply.
What Does Federal Tax Lien Discharge Mean?
A federal tax lien is a way for the IRS to keep or take the property of a taxpayer who does not pay a tax debt. It is placed on real estate, personal property, and other assets that can be used to offset unpaid taxes.
A federal tax lien discharge is a legal process that removes the IRS claim to a taxpayer’s property that was subject to a lien. You can ask the IRS to consider a discharge by completing Form 14135.
Who Can Apply for an IRS Tax Lien Discharge with Form 14135?
Any person or entity with property subject to a federal tax lien and wanting to remove that lien from a specific property can apply for an IRS tax lien discharge with Form 14135. This includes individuals, businesses, estates, and other entities.
Keep in mind that there are specific eligibility criteria that you must meet before a discharge is granted.
What Reasons Qualify for Discharge?
Several reasons qualify for IRS discharge of a federal tax lien.
These include:
- 6325(b)(1): The value of taxpayer’s property with a federal tax lien on it is double the tax debt amount. If other debts are owed too, such as a mortgage and state or local taxes, the property’s value must be twice the sum of federal taxes and all other debts.
- 6325(b)(2)(A): The tax debt is partially fulfilled by a payment equal to the value of the IRS stake in the property.
- 6325(b)(2)(B): The IRS interest in the property holds no value. This happens when debts with higher priority than the federal tax lien surpass either fair market value or a property’s sale value
- 6325(b)(3): An agreement is reached with the IRS to allow the sale of a property
- 6325(b)(4): Discharge is issued to a third party property owner if they make a deposit or bond equal to the IRS claim for the property. If you own the property and are not responsible for a tax debt, you will have 120 days to challenge a federal tax lien.
What Information Do You Need to Complete IRS Form 14135?
You need the following information to complete and submit Form 14135 to the IRS to request discharge of a tax lien:
- Personal details, including name, address, and SSN
- Description of the property, including type and address
- Proposed property sale value
- A third-party appraisal of the property
- Reasons for requesting a discharge
- Property owner’s name and relationship to you
- Attorney’s information if one is representing you
How Long Does the IRS Take to Review a Lien Discharge, and How Do They Notify You If You’re Approved?
The IRS usually takes 30 days to review a lien discharge request. If your discharge is approved, the IRS will send Letter 4025 with its determination and the action you must take going forward.
If the IRS denies your discharge request, you can appeal the decision under the Collection Appeals Program (CAP)
Does the IRS Have Other Lien Relief Options?
Yes, the IRS provides other lien relief for taxpayers in addition to a discharge.
These include:
Lien Withdrawal
This option removes the tax lien’s public notice and guarantees the IRS is not challenging any additional creditors for your property. However, it does not remove a lien from public records.
Lien Release
If a tax debt is paid in full or the CSED expires, the IRS releases the lien. This action removes a lien from public records.
Certificate of Subordination
This relief does not remove a lien, but it changes its priority. If you need to refinance a mortgage or obtain a loan, the IRS may agree to “subordinate” the lien so your lender can move ahead of them in line for repayment if you default.
Certificate of Non-Attachment
This option is used when the IRS agrees that a lien does not attach to any specific property. It could be due to the fact your assets are exempt from seizure or the value of your property is less than the amount owed.
If you need help finding relief for a tax lien, we can provide expert guidance and representation to protect your interests in your property while you work together with the IRS to resolve your tax issues.
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