Volume 15 Issue 3 -- May/June
Volume 15 Issue 3 -- May/June 2011
Internal Revenue Service (IRS) tax liens are comparable to judgments obtained in many court systems. Even if there is no enforced collection action, like a levy, a tax lien creates substantial problems usually by ruining one’s credit score and making it very difficult, if not impossible, to borrow money or to sell assets.
The most obvious way of obtaining a lien release is to pay the tax debt in full. If there are assets such as real estate, selling the assets or borrowing funds using the assets as collateral for a loan, is another way. If the proceeds of the sale are sufficient to pay the tax debt in full then the lien can be released by having the closing agent pay the IRS.
While it is possible to borrow money to pay the tax, it is very difficult, if not impossible, to borrow funds unless there is sufficient security or substantial income which would assure a lender of repayment.
When a buyer of your property or a lender agrees to buy or lend, the disbursement of funds is always contingent on getting the IRS lien released.
A buyer or lender will insist on a “Certificate of Release of Federal Tax Lien” Form 668(Z). Once recorded in the appropriate office, the certificate is an assurance to the buyer or lender that the IRS lien is released.
Suppose Phor Lorn (Phor) has a recorded IRS lien and wants to buy a building to be occupied by his insurance agency, Phorging Ahead. The lender, after agreeing to lend to Phor says it will make the loan “assuming it receives a recorded IRS certificate of release.”
Previously, many states had a central IRS office that released liens throughout the state. A call to these offices could produce a release usually in a matter of days or weeks.
Today, getting a certificate of release is much more difficult. Here are the steps:
Phor must first pick a date around which the lender is willing to close the loan. Then you must call the IRS Automated Collection Service (ACS) for a payoff figure that includes the tax, penalties, and interest to the approximate date of loan closing.
Because calling ACS is such a pain and since many loans do not close on the anticipated date, it is a good idea to obtain multiple release dates which are 15, 30, and 45 days in the future.
Note that the IRS release amount is usually different from the payoff figure for a variety of reasons such as intervening interest, tax periods for which no lien has been filed, etc. The bottom line for the IRS is it requires full payment of all tax debts whether or not a lien has been filed.
Next, with the payoff figure Phor or his attorney tells the lender the payoff amount and requests a certified check for that amount. When the certified check arrives, it is necessary to go to an IRS office that is capable of issuing a certificate of release.
Not all IRS offices will assist the public in obtaining releases. To be sure that the IRS office you have chosen issues certificates of release, you must call them in advance. Unfortunately, they will usually not answer the phone and you will get a recording asking you to leave a message and stating you will get a call back within two days. Frequently this promise is not honored by the IRS.
Once at the IRS office, you will be asked to take a number and then wait until your number is called. Often, this takes two to two and one-half hours.
the person designated to assist
you meets with you, he or she will inform you that you have another
hour and one-half wait while the lien request is being processed in yet
office. In the case of Northern Virginia, the lien releases come from
After the certificate of release is obtained from the IRS, the next step is to have it recorded. This means going to the county office where the original lien was recorded and having the certificate of release recorded in the county records. There is a place on the certificate of release for the Recorder of Deeds to place a stamp or other evidence of recording.
With these steps accomplished, the recorded certificate of release is then sent to the lender for the release of the funds for Phor. After facing all of this, is it any wonder that Phor Lorn is forlorn?
you need help with a release of
lien, contact Newland & Associates.
Published by the law firm of Newland & Associates, PLC
9835 Business Way
Manassas, VA 20110
Call us at (703) 330-0000 for a full range of business law and tax-related services.
While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.
Redistribution or other commercial use of the material contained in Newland's Business Notes is expressly prohibited without the written permission of Newland & Associates, PLC.
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