WASHINGTON — The Internal Revenue Service today announced an expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home.If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. Taxpayers or their representatives may request that the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.
“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes,” said Doug Shulman, IRS commissioner.
“We realize these are difficult times for many Americans,” Shulman said. “We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.”
Filing a Notice of Federal Tax Lien is a formal process by which the government makes a legal claim to property as security or payment for a tax debt. It serves as a public notice to other creditors that the government has a claim on the property.
In some cases, a federal tax lien can be made secondary to another lien, such as a lending institution’s, if the IRS determines that taking a secondary position ultimately will help with collection of the tax debt. That process is called subordination. Taxpayers or their representatives may apply for a subordination of a federal tax lien if they are refinancing or restructuring their mortgage. Without lien subordination, taxpayers may be unable to borrow funds or reduce their payments. Lending institutions generally want their lien to have priority on the home being used as collateral.
To apply for a certificate of lien subordination, people must follow directions in Publication 784, How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien. Again, there is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication 4235, Collection Advisory Group Addresses, for address information.
Taxpayers or their representatives may apply for a certificate of discharge of a tax lien if they are giving up ownership of the property, such as selling the property, at an amount less than the mortgage lien if the mortgage lien is senior to the tax lien. The IRS may also issue a certificate of discharge in other circumstances if the taxpayer has sufficient equity in other assets, can substitute other assets, or is able to pay the IRS its equity in the property. Without a tax lien discharge, the taxpayer may be unable to complete the home ownership change and the ownership title will remain clouded.
To apply for a tax lien discharge, applicants must follow directions in Publication 783, Instructions on How to Apply for a Certificate of Discharge of a Federal Tax Lien. There is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication 4235 for address information.
The IRS also urges people to contact the agency’s Collection Advisory Group early in the home sale or refinancing process so that it can begin work on their requests. People sometimes delay informing lenders of the tax liens, which only serves to delay the transaction.
Source: IRS – IR-2008-141, Dec. 16, 2008
Audio file: Tax Lien Relief
IRS Commissioner Doug Shulman said he isn’t in a position to predict how many families will benefit. He did say there are more than one million federal tax liens outstanding tied to real estate and personal property. The IRS issues more than 600,000 federal tax lien notices a year.
When the IRS files a lien on someone’s property, it’s in effect making a formal claim to that property as security or payment for a tax debt. The lien also tells other creditors that the government has a claim on the property.
“These are difficult times for the U.S. economy,” said Mr. Shulman. “Many homeowners are at risk of losing their homes. Many are hoping to refinance at lower rates, and in some cases, homeowners are forced to sell their homes and get the best deal they can in the current marketplace.”
More states are offering tax amnesties or similar programs.
In a typical amnesty, the state agrees not to prosecute or impose penalties on those who step forward voluntarily, before officials knock on their door, and pay what they owe or make arrangements to pay. Many states go even further by offering reduced interest charges, or no interest at all.
Connecticut hopes to raise about $40 million through an amnesty from May 1 through June 25, 2009, says Sarah Kaufman, a spokeswoman for the Department of Revenue Services in Hartford. The state won’t impose penalties and is offering a reduced interest rate. “You’re going to see more deals like this in the coming year as legislative sessions open in 2009″ and lawmakers look for ways to raise cash quickly, says Verenda Smith of the Federation of Tax Administrators in Washington.
In New York, the state tax department launched a new “voluntary disclosure” plan last summer that officials say already has been highly successful. It offers protection from criminal and civil penalties to all eligible taxpayers who voluntarily disclose and “correct” their “delinquent tax liabilities,” and who agree to obey the law in the future. To participate, you have to come in voluntarily before the department finds you. Unlike traditional amnesties, New York’s offer doesn’t have an end date. USA Today editor Paulson to leave in February 12.17.08
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