Releasing an IRS Tax Lien
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.
When
the person designated to assist
you meets with you, he or she will inform you that you have another
hour to
hour and one-half wait while the lien request is being processed in yet
another
office. In the case of Northern Virginia, the lien releases come from
the
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?
If
you need help with a release of
lien, contact Newland & Associates.
Copyright 2011
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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