A federal tax lien is the government’s legal claim against your property when tax debts are not paid. The lien is placed to protect the government’s interest in your property. So, what does a taxpayer do if they are trying to sell their home that is subject to a federal tax lien? One solution may be to apply for a Certificate of Discharge.
A Certificate of Discharge under the Internal Revenue Code removes the federal tax lien from the property that the taxpayer is attempting to sell. The Internal Revenue Service (“IRS”) may grant the application for discharge under the following circumstances:
1. If the value of the property remaining attached by the lien(s) is at least twice the amount of the federal tax liability secured by the lien;
2. When the tax liability is partially satisfied with an amount paid that is not less than the value of the interest in the property being discharged;
3. When it is determined that the government’s interest in the property has no value;
4. If an agreement is reached with the IRS allowing the property to be sold; or
5. Issued to a third party who owns the property if a deposit is made, or an acceptable bond provided equal to the governments interest in the property.
If a taxpayer’s property is also encumbered by an Oklahoma Tax Warrant, a partial release may be issued in the following circumstances:
1. Applicant’s prior existing outstanding lien on the property is valued greater than the amount that could be collected at a sale of the property for fair market value, making the outstanding Tax Warrant uncollectible;
2. Applicant’s prior existing outstanding mortgage on the property is valued greater than the amount that could be collected at a foreclosure sale;
3. Applicant’s mortgage lien(s) has been foreclosed in District Court but the State of Oklahoma ex rel, Oklahoma Tax Commission (“OTC”) was not listed as a party defendant in the foreclosure action and there exists no likelihood of collection or enforceability of a Tax Warrant against the property;
4. Where the holder of a mortgage lien has taken a deed in lieu of foreclosure and there exists no likelihood of collection or enforceability of a Tax Warrant against a particular property;
5. Applicant is not the taxpayer named in the Tax Warrant, and Applicant property that was encumbered by a prior OTC lien, that was not properly extinguished before it passed to Applicant;
6. Applicant does not have enough equity in property to fully satisfy the Tax Warrant; or
7. Denial of the Partial Release would result in an undue expense or hardship on the Applicant.
If you are a taxpayer unable to sell your home due to IRS or OTC tax liens, contact DeBee Clark to discuss your options.
