Newland's Business Notes

Releasing Federal Tax Liens

Volume 18 Issue 1 -- January/February 2014

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.

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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