Real Estate

Tax lien subordination

If the IRS filed a tax lien against your property due to unpaid taxes, and there’s no way you can remove it, it doesn’t mean you can’t sell or refinance your home. In fact, the IRS is often interested in improving a taxpayer’s financial situation, which, in turn, increases their ability to pay government debt. If refinancing a property would increase your monthly disposable income or allow you to pay a lump sum to the IRS, you may be eligible for tax lien subordination.

If the IRS accepts your applications and issues a Federal Tax Lien Subordination Certificate, this document allows a potential creditor, named on your application, to preempt the IRS in the position of creditor, but only for the property named on the Federal Tax Lien Subordination Certificate.

There are two reasons the IRS might agree to subordinate a lien. These reasons are included in the IRS Code Sections 6325(d)(1) and 6325(d)(2). Lien subordination under Section 6325(d)(1) is granted if the refinancing of a taxpayer’s property will provide the taxpayer with funds to pay the tax liability in full, or at least to make a payment equivalent to the principal obtained. IRS interest and penalties add up very quickly, so it is often beneficial for a taxpayer to use this method to reduce tax debt.

Another basis for tax lien subordination may be if refinancing a property would lower a taxpayer’s monthly mortgage payments and thus increase disposable income, which can be used to make larger monthly payments to the IRS for the tax liability. . Section 6325(d)(2) authorizes tax lien subordination for this particular reason.

The IRS requires Form 14134 – Application for Federal Tax Link Subordination Certificate to be completed for this purpose. It generally takes 45 days or more for the IRS to process the lien subordination application and review it by the IRS Advisory Group Manager.

If the IRS grants a lien subordination, you may need to submit a payment before the IRS will send you the Certificate of Subordination. However, if your application to subordinate a lien is based on IRS Code Section 6325(d)(2), you do not have to pay a fee to obtain your certificate.

If the IRS denies your request to subordinate a lien, you can appeal this decision, but you must make sure that your Collection Appeal Request is received by the deadline stated in the IRS letter.

Although it is possible to file Form 14134 yourself, hiring a tax resolution specialist to file this form and, if necessary, negotiate a lien subordination on your behalf, will save you a lot of time and give you a better chance of success.

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