Negotiating an I.R.S. Tax Lien on a Short Sale

Some Considerations and Talking Points

If an IRS lien is wiped out by a trustee sale, the IRS has 120 days to redeem the property from the winning bidder and resell it. (These days the willing bidder is usually the lender who takes back the property.)

The IRS will release their right of redemption if he new owner pays “an amount determined to be equal to that right” or, if the right of redemption is “DETERMINED TO BE WITHOUT VALUE, you will NOT BE REQUIORED TO PAY to obtain a release.”

If the short sale is not completed and the property and goes back to the lender and the IRS does decide to redeem the property, they would be required to pay:

1. The actual amount paid for the property at the foreclosure sale (if the lender takes the property back the “price paid” could include the outstanding loan balance plus accrued interest, all late charges, fees, foreclosure costs, etc. In today’s market this amount could well exceed the amount the IRS could resell the property for.)

2. 6% interest on the amount paid from the date of the foreclosure sale to the date of redemption.

3. Reimbursements for any ‘necessary” expenses incurred to maintain the property i.e.: leaking roof, leaking pipes, etc. (just not cosmetic repairs).

A lien discharge is not a free pass for the taxpayer to ignore unpaid taxes. The agency is simply RELESING THE LIEN ON THE TAXPAIERS HOME, NOT absolving the taxpayer of ultimate responsibility to pay due tax. Rather, in these instances, the IRS simply releases its claim on the affected home. The taxpayer, however, still is responsible for that due tax.

The removal of a tax lien from a residence doesn't prevent the IRS from placing another one against other property. The IRS can shift its legal claim to the taxpayers' other assets, such as other real estate, a car, even wages and other income.

Therefore IT IS IN THE INTEREST of the IRS to release the home because the short sale may help the homeowners get back on their feet and therefore they may be more able to eventually make good on the IRS lien.

The Process

The process to request a discharge of a tax lien typically takes around 30 days after the agency receives an application. However, according to a recent statement by IRS Commissioner Doug Shulman, “in response to the current economic situation, the IRS is expediting the process it uses to deal with residential tax liens.”

To contact the IRS on the homeowner/taxpayer’s behalf you will need to have the homeowner sign IRS Form 8821 Tax Information Authorization.

http://www.irs.gov/pub/irs-pdf/f8821.pdf

For step by step instruction on how to apply for a Certificate of Discharge of Property from Federal Tax Lien go to:

http://www.irs.gov/pub/irs-pdf/p783.pdf

For the correct address to submit the request go to:

http://www.irs.gov/pub/irs-pdf/p4235.pdf

Is it Worth it?

All that said, many with experience in the short sale business recommend just skipping properties with tax liens, HOAs, judgments etc., and move on to a property that is easier to work and that has less “moving pieces.”

Hope this helps.

Best of luck.