IRS Federal Tax Lien on Home Under Contract

Ben G.Pro Member

Investor · Indianapolis, IN · Member since 2013 · 647 posts · 196 votes

We have a property under contract and our title company found a IRS Tax Lien attached to the property.

Ron Legrand says if a property has a tax lien attached to it, that if title transfers we can request a lien release from the IRS and that they will grant them. In his decades of experience he has done this 20+ times.

A attorney tells me that the IRS will not release the tax lien. If that's the case, then what are our options? We need the seller to cooperate with us to negotiate the tax lien, he is not willing to do so because my attorney says any proceeds he was to receive will go to the IRS.

Does anyone in the forums have any experience with this complicated IRS Tax Lien situation on deals that they've done? What was the solution?

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Greg H.Pro Member

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Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes

No lender will loan money or title company will issue title insurance unless the lien is released prior to closing

The only potential buyer is a cash buyer who is willing to close subject to the IRS lien and without title insurance. A significant discount would be needed to satisfy the additional risk the buyer would take

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Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
8y
You need the IRS to issue a certificate of discharge of the property from the lien. IRS gets paid in your scenario.
If your seller doesn't want to cooperate that is a problem.
With the discharge, in effect the lien is "released" from your property but not from other property owned by the debtor.
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Greg H.Pro Member
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Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
8y
No lender will loan money or title company will issue title insurance unless the lien is released prior to closing
The only potential buyer is a cash buyer who is willing to close subject to the IRS lien and without title insurance. A significant discount would be needed to satisfy the additional risk the buyer would take
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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
8y
How much is the tax lien relative to the property price? If it is less then the IRS gets paid and the owner gets the rest. I don't know specifics but my guess is the IRS would be happy to give a release if they get proceeds from the sale even if the price does not cover the whole debt. If the IRS will play ball you don't have to worry about the owner he is legally obligated to sell to you. You can file a specific performance suit against him.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
if seller won't deal with IRS then it time to move on.. or as others stated take title sub too it and rent it out.. if this is a low value indy ASSET it would be very rare for IRS to do anything like try to foreclose the lien it just sits there until your seller works it out.. best way to get it off is to buy the note on it and foreclose it out.. then irs has to do something in 120 days or they lose their position.. if home has no debt ahead of the irs lien.. then your kind of fubared Vs a vi title insruance etc
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Chris K.
Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
8y
@Ben G.
What's the lien amount? If it is small enough and makes the deal still profitable, you can basically offer the IRS to pay it. Wasn't exactly an investment situation, but I've worked with businesses that did this to get the property that they wanted.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
8y
@Ben G.
Ben, please watch the official IRS video that will answer many of your questions.
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Ben G.Pro Member
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Investor · Indianapolis, IN · Member since 2013 · 647 posts · 196 votes
8y
@Michael Plaks your video seems to be helpful, so it looks like I can close on the property, (the lien is significantly higher than the value of the property) then apply for the lien to be released under Basis for Discharge: 6325(b)(2)(B) on Form 14135. Do you or anyone else you know have experience executing this application?
@Jay Hinrichs the lien is significantly higher than the value of the property, but the property is in Fountain Square, so as you know there's a lot of fix and flip upside there. Your idea intrigues me as well. What note are you referring to me buying though? The property is free of any mortgage or notes, the lien is what prevented me from getting title insurance and closing.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
contact IRS and see if they will release the debt for a number that makes sense to you. if you need title insurance you need it removed.. usually the title co will help with this.
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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
8y
@Ben G.
Before you pay people like us for help, try free help from the IRS. This IRS publication lists the right contact information, including local technical groups that specialize in liens.
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Andy Becker
Investor · Member since 2018 · 24 posts · 6 votes
5y
How did you make out with this? Have a similar situation myself. Did anyone help you or was the IRS able to assist?
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Matthew Johnson
Attorney · Nashville, TN · Member since 2020 · 5 posts · 2 votes
5y
Hi Andy,
I know this is resurrecting an old post, but in response to your question, I thought I'd chime in. Ron Legrand is not a tax attorney, I am; the IRS doesn't simply release tax liens without being paid, unless there is a statutory or administrative directive to release, discharge, subordinate, or withdraw them (all which have slight differences). Internal Revenue Code § 6325(b)(2)(B) mentioned above by Ben may be on point, I don't know the circumstances. It may help to tell you there are additional provisions in the tax code and Treasury Regulations that give additional guidance (see for example "Treas. Reg. § 301.6325-1"). Further, the IRS may also withdraw the lien if the seller (who I assume is the liable taxpayer) gets under certain types of installment agreement (see Section 6323(j)). I am making the assumption in saying all this that the lien is an IRS income tax lien, not a state tax lien or an estate tax lien, and was correctly filed.
Even assuming you have the situation to discharge or release the lien, sending in a form as the IRS indicates would take MONTHS to be approved with the current state of the IRS due to the pandemic and it being tax season. I advise you find a capable tax professional to assist you with the lien release request. Frankly, it may still take awhile in any case to get a tax lien released in a reasonable time just given current IRS operations.
*This answer is not intended to provide you with specific legal advice regarding your situation, or to create any attorney-client relationship. The intent is only to provide general information. You should be aware that you cannot rely on this answer to provide you with any protection against tax penalties. You should always consult your own attorney in
order to obtain legal advice. I am licensed only in Tennessee, so an answer in another state may be different.
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