Releasing Federal Tax Liens
Perennial procrastinator Len Late (Len) was
late in paying his tax bills and incurred a substantial tax liability
that resulted in a Federal Tax Lien (FTL). Despite owing the IRS
$100,000, Len owned a desirable piece of land with a fair market value
of $125,000. Polly Purchaser (Polly) was interested in purchasing the
land, but would not proceed with the purchase as long as the IRS lien
existed.
Polly should not, of course, pay Len $125,000
and rely on his good intentions that he would pay off the tax
liability. Since Len was already in tax trouble, he should not be
counted on to pay off the lien.
What to do? While the process is not easy and
dealing with the IRS takes
quite a bit of time, it is definitely possible to sell, in some cases,
land which is subject to an IRS lien.
Polly really wanted the land but did not know
how to get the FTL removed. Fortunately, there is a way to do this, and
here is how it has to be done.
One of the first steps is to make sure that the
parties, Len, Polly, and the closing or escrow agent are willing to
work together in order to get the property purchased by Polly, the lien
paid off, and the title cleared.
Next it is necessary to coordinate with the IRS
and get a payoff amount from one of the offices in the IRS which will
provide a payoff figure. It will be necessary to contact the IRS to
find out which office is able to provide payoff figures.
Getting only one payoff amount is not usually
sufficient. There should be two or three payoff amounts obtained,
depending on how long it may take to consummate the closing. Often
there are delays in real estate closings so it is advisable to get
payoff amounts for 30 days, 60 days, and in some cases 90 days in
advance.
The IRS refers to these dates as “target dates”
and will provide a printout showing the tax liability with interest
computed to the target dates. After the closing, it will be necessary
to pay the IRS the full amount of Len’s tax liability plus interest
computed to the closest future payoff date.
Assuming Len and Polly are still willing to
proceed, once the funds ($125,000) are in the hands of the closing
agent, the closing agent should be able to get a certified check for
the amount needed by the IRS. Once the certified check is issued, someone must go to a regional
IRS office where a lien release can be obtained. Not all IRS offices
will handle lien releases.
After the location of a suitable IRS office has
been identified, the next step is to go to that office with the
certified check in the amount needed to release the lien. In some IRS
offices, this is a somewhat difficult process and not all IRS personnel
know how to prepare a form called a “Certificate of Release of Federal
Tax Lien,” Form 668(Z). The release will typically show the type of
tax, the tax period, the last four digits of the social security
number, the date of assessment, the date of filing, and the unpaid
balance.
Not every IRS office can actually issue the
Certificate of Release. In some offices it may be necessary to have the
release prepared by a more central office. It is important to have the
original of the Certificate of Release, not just a copy.
After the funds have been given to the IRS and
the Form 668(Z) is obtained, the original must be taken to the local
recorder of deeds for recording. After that, the Certificate of Release
must be delivered to the title company, which would then record the
deed and the Certificate of Release so that Polly can obtain clear
title to the property.
What if the amount to be received from Polly is
less than the IRS tax liabilities of Len? In this case it is still
possible to obtain a release of the lien, even though the tax liability
is not fully paid off.
If the IRS will not be able to obtain a better
price for the property than Polly is willing to pay, the IRS may still
release the lien as it relates to the land that Polly is purchasing but
not release Len from the remaining liability.
By accommodating Polly in this manner, the IRS
is able to obtain the maximum amount that it could get from that piece
of land. If for some reason the IRS thinks the sales price is not bona
fide, it will of course decline to issue the Certificate of Release.
If you or your acquaintances need assistance
with removing a Federal Tax Lien, please contact Newland &
Associates.
Copyright 2014
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.
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