Last week’s blog discussed how you could subordinate an IRS tax lien to another creditor in order to refinance a mortgage. You can link to it here.

This week’s blog will go into detail another one of the options available to taxpayers to get around an IRS tax lien. This option is known as discharge.

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

The best analogy I’ve heard regarding this topic comes from Eric Green, a tax attorney and a named partner in his firm, Green & Sklarz, in New Haven, CT. He says an IRS tax lien is like a blanket that covers all the taxpayer’s assets.

It is possible to have an asset discharged out from under the blanket or lien. The lien still exist but the asset can be sold to hopefully repay some or all of the tax debt.

A good example of a discharge is when a taxpayer wishes to sell a home that is subject to an IRS tax lien.

The taxpayer who is selling the home may receive enough equity in the sale to pay the debt in full or little or no equity at all.

The taxpayer must submit IRS Form 14135 (Application for Certificate of Discharge of Property from Federal Tax Lien) along with all documentation associated with the sale such as:

  • Broker listing
  • Appraisal
  • Sale contract
  • Estimated closing statement

After submitting all sale backup documents, the IRS will agree to discharge the home out from under the lien as long as the IRS gets all the equity available to the taxpayer up to the amount owed. The taxpayer cannot walk away with cash and a lien discharge unless the debt is paid in full.

If you have years of unfiled tax returns or owe the back taxes, please call me. I can help.