Tax Lawyer Help - IRS Offer in Compromise - Lien & Levy Removal - Internal Revenue Service Audit Collection Problem Assistance

It is generally known that under existing IRS law, the IRS can file a notice of a tax lien in all circumstances where a person has a tax liability. What is generally not known are the circumstances in which the IRS will either withdraw the notice, release the notice or subordinate the tax lien.

Withdrawal of a notice of tax lien where the taxpayer owns no real estate and wishes to purchase real estate.

The IRS can be compelled to withdraw the notice of tax lien to permit the person with the tax lien to buy real estate.

The IRS uses the tool of the tax lien even where it makes no sense to impose a tax lien. If a person with a tax liability owns no real estate, the tax lien will not stop that person from buying or selling a car, from putting money in or out of a bank account, or any other activity. In the absence of real estate, the only effect of the tax lien is to taint that person’s credit.

Section 6323(j) of the Internal Revenue Code states that the IRS may withdraw a notice of tax lien in certain circumstances:

Where the notice was improper (situations where the filing was in error or not filed in accordance with administrative procedures);
Where the taxpayer has agreed to make payment in an Installment Agreement;
Where the withdrawal will “facilitate the collection of the tax liability,” or
With the consent of the taxpayer or the National Taxpayer Advocate, the withdrawal of the notice would be in the best interests of the taxpayer and the United States.

The withdrawal of the tax lien satisfies the requirements of the Internal Revenue Code because it can be demonstrated that the withdrawal facilitates collection by the IRS and is also in the best interests of the taxpayer and the United States. If a notice of tax lien is withdrawn by the IRS to permit that person to buy real estate, the purchase benefits both the taxpayer and the IRS. The taxpayer will be able to get the credit and financing to purchase the real estate that was previously denied. Even though the IRS gives up priority to the mortgage, the IRS has access to the potential appreciation beyond the mortgage. It is a “win-win” for both the IRS and the taxpayer. An additional winner is the company providing the financing.

Priority of Purchase Money Mortgage Over an IRS Tax Lien Even if the IRS Tax Lien is Filed Prior to Purchase Money Mortgage

Very few financial institutions know that the position of the IRS is that a purchase money mortgage will have priority over an IRS tax lien even if the IRS tax lien was filed prior to the purchase money mortgage lien. The authority for that is Revenue Ruling 68-57 which clarifies The Federal Lien Act of 1966.

This priority for the purchase money mortgage over an IRS tax lien is based on the concept that the taxpayer has acquired property or a right to property or a right to property only to the extent that the value of the whole property or right exceeds the amount of the purchase money mortgage (i.e., to the extent of equity).

Financing should not be denied to a person with an IRS tax lien because the financing entity will have priority over the IRS to the extent of the purchase money mortgage. Financial institutions who do not know this important position of the IRS are cutting themselves out of a very large market.

Subordinating a Tax Lien to Permit Refinancing Without Money Paid to Taxpayers

The IRS can be compelled to subordinate a tax lien to permit refinancing in situations where no funds are paid to the taxpayer. The reasons are the same. Refinancing benefits the IRS because the taxpayer will have more money to pay his tax obligations and it obviously benefits the taxpayer who wants to take advantage of lower rates. Refinancing that represents a consolidation of debt should also provide a mutuality of benefits between the IRS and the taxpayers. This potential market is large.

Subordinating a Tax Lien to Permit Payment of the IRS Tax Debt

Mutuality of benefit between the IRS and a taxpayer is obvious. A taxpayer is always better off economically in substituting a private creditor for the IRS.

Subordinating a Tax Lien if Taxpayer Has No Equity

The IRS can be compelled to subordinate the lien to facilitate the sale simply because there is no downside to the subordination to the IRS and subordination will clearly benefit the taxpayer. The IRS will discount the “fair market value” of real estate by 20%. The discount represents the expense to the IRS for the cost of a collection seizure and sale of the real estate. Therefore, even if there is equity in the hands of the taxpayer of up to 20% of the fair market value of the property, that equity will not be taken into account by the IRS.

Elimination of a Tax Lien and Other Tax Lien Strategies

A tax lien must be released by the IRS within 30 days after the tax liability is discharged. Although a tax liability is eliminated by payment, the base of taxpayers who cannot afford to pay their tax liability is a very large market. The ability to lend to that market is enhanced if the liability is eliminated or reduced to a small enough number so that full payment is facilitated.

Tax liens can be appealed before and after a notice of lien is filed in the public records.
The IRS has the discretion to not file a tax lien or to withdraw a tax lien if a taxpayer enters into an Installment Agreement (paying the tax liability in installments).
There may be technical flaws in the lien that can be identified leading to its removal.
The tax lien goes away when the tax liability goes away. The liability can go away through an offer in compromise for those who cannot afford to pay in full or in installments.
Tax liens must be removed when the statute of limitations on collections has expired (10 years after the date of assessment).
Bankruptcy will also eliminate a tax liability in many situations but never within a three-year period that preceded the filing for bankruptcy.

Strong advocacy, the ability to argue the facts and the law to the IRS is essential in getting the IRS to withdraw a notice of tax lien. In the circumstances, it is appropriate for to use an experienced tax attorney for guidance.

Click here to Contact Us

[Top of Page]