When the IRS assesses a federal tax liability against a taxpayer, a lien in favor of the United States arises upon all property and rights to property of the taxpayer. Discharge of property from the federal tax lien removes the United States’ lien from that specific property of the taxpayer. A lien discharge may be granted under several different circumstances. Below, are the more common grounds for discharge of property from a federal tax lien.
- If the value of the taxpayer’s remaining property encumbered by the federal tax lien is equal to at least twice the amount of the federal tax liability secured by the lien and any encumbrance entered into before the IRS filed its public notice of the lien. If there are mortgages, state and/ or local taxes, mechanics liens, etc., the amount of these debts would be added to the amount of the tax liability and multiplied by 2;
- When the tax liability is partially satisfied with an amount paid that is not less than the value of the United States’ interest in the property being discharged. In the case of Tenancy by Entireties property, the United States is generally paid one-half of the proceeds in partial satisfaction of the liability secured by the tax lien;
- When it is determined that the government’s interest in the property has no value, e.g. when the debts senior to the federal tax lien are greater than the fair market value of the property or greater than the sale value of the property;
- If an agreement is reached with the IRS allowing the property to be sold provided the sale proceeds will be held in a fund subject to the claims of the United States in the same manner and priority the claims had prior to the property being discharged.
- A discharge will be issued to a third party who owns the property if a deposit is made or an acceptable bond provided equal to the government’s interest in the property. In the case of Tenants by Entireties property, a deposit or an acceptable bond totaling one-half the government’s interest in the property must be made. A property owner, who is not the taxpayer responsible for the tax liability, who makes a deposit or posts an acceptable bond to obtain a discharge, has 120 days to file an action in federal district court, challenging the IRS’ determination of the government’s lien interest. This is the exclusive remedy available to the third party for the return of the deposit or accepted bond or a portion thereof. An administrative request for refund and a refund suit in district court is not available.
Like levy releases, lien discharges are factually and legally complex matters, which our Law Offices possesses the experience and skills which can assist you in obtaining this relief.