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Did you receive an IRS Letter 3172 Notice of Federal Tax Lien, or a similar letter from your state taxing authority?
What does such a letter mean? The IRS Letter 3172 Notice of Federal Tax Lien tells you that you have an outstanding federal tax debt that is owed, and that the IRS has filed an IRS Form 668(Y) Federal Tax Lien with either your local court house or local county records office instructing local authorities to place a federal tax lien on any real property and other property you own up to the amount of the federal tax owed! What this means is that if you attempt to sell or otherwise transfer your real property or other property the IRS will receive the sales proceeds up to the amount of the federal taxes owed, rather than the money or proceeds from the sale going to you or to whomever you attempted to transfer the property to!
The IRS Letter 3172 Notice of Federal Tax lien also tells you that you have the right to appeal the Federal Tax Lien filing, BUT you only have 30 days from the late on the letter to file your appeal, or you will lose your appeal rights, and therefore, time is of the essence!
How can you get rid of a Federal Tax Lien, if you are unable to pay off the amount of the federal tax in full? You could file an IRS Form 14135 Application for Certificate of Discharge of Federal Tax Lien, provided you have a reason for the discharge that the IRS could accept.
Under Internal Revenue Code (IRC) Section 6325(b)(1) if you want to have the Federal Tax Lien removed from a particular piece of real property that you want to sell AND you have other properties subject to the Federal Tax Lien valued at an amount that is equal to at least twice the amount of the federal tax lien amount then the IRS might agree to remove the federal tax lien from the specific piece of real property that you want to sell.
Under IRC Section 6325(b)(2)(A) the IRS might agree to release the Federal Tax Lien in exchange for a payment to the IRS that is less than the amount of the tax lien but that is at least equal to the amount of the interest the federal government has in the property. For example, if your tax balance is $120,000 but the fair market value of the property is $100,000 and the claims that are senior to the Federal Tax Lien equals $50,000 then the IRS may agree to release the Federal Tax Lien in exchange for a payment to the IRS of $50,000 ($100,000 less the $50,000 senior claims).
Under IRC Section 6325(b)(2)(b) the federal government may agree to remove the Federal Tax Lien when the government’s interest in the property is worthless. For example, if the fair market value ofthe property is $100,000 but the amount of the liens in the property that are senior to the Federal Tax Lien are $120,000 then, because the taxpayer’s property value is under water, the IRS might agree to remove the Federal Tax Lien.
Under IRC Section 6325(b)(3) the IRS might agree to remove the Federal Tax Lien and allow the sale of property if you can submit to the IRS an Escrow proposal under which after the liens that are senior to the Federal Tax Lien will be paid from the proceeds from the sale the IRS will be paid the federal tax owed per the Federal Tax Lien from the sale proceeds prior to the liens that are junior to the Federal Tax Lien being paid from the sale proceeds.
The IRS could also grant an IRS Form 14135 Application for Certificate of Discharge of federal tax Lien if the IRS agrees to Lien Subordination in which the IRS will agree to allow liens that are junior to the Federal Tax Lien to move ahead of the Federal Tax Lien, such as in a case where the taxpayer is trying to refinance his or her home mortgage to avoid foreclosure, but Federal Lien Subordination is extremely complicated and time consuming, such that the vast majority of tax payers really need to hire a tax expert experienced in Federal Lien Subordination if a taxpayer wants to go this route.
However, if a taxpayer can pay down his or her federal income tax balance to under $25,000 and enter into a 60 Month Direct Debit IRS Installment Agreement then after the IRS has successfully withdrawn three consecutive monthly IRS Installment Agreement Payments electronically from the taxpayer’s bank account then rather than preparing and filing an IRS Form 14135 Application for Certificate of Discharge of Federal Tax Lien the taxpayer could instead file an IRS Form 12277 Application for the Withdrawal of Filed IRS Form 668(Y) Notice of federal Tax Lien, pursuant to IRC Section 6323(i).
What if you have a state tax lien? Each state has its own rules and procedures regarding the removal of a state tax lien and offer fewer resolutions than the IRS. For example, the California Franchise Tax Board, like the IRS, does provide for the removal of a state tax lien under a California Franchise Tax Board Installment Agreement if you can reduce your state tax balance to under $25,000. The California Franchise Tax Board may allow for the removal of a state tax lien if a taxpayer qualified for a California Franchise Tax Board Offer in Compromise, or if the taxpayer is in federal bankruptcy court and the state tax qualifies for discharge under the federal bankruptcy rules and procedures.
Do you need help in dealing with an IRS Letter 3172 Notice of Federal Tax Lien or with the timely preparation and filing of an Appeal of Filing of IRS Form 668(Y) Filing of Federal Tax Lien, or with the preparation and filing of either IRS Form 14135 Application for Certificate of Discharge of Federal Tax Lien or IRS Form 12277 Application for the Withdrawal of Filed IRS Form 668(Y) Notice of Federal Tax Lien, or with a state tax lien? We can help!
Coast One Tax Group is a group of attorneys, accountants and Enrolled Agents with over ten years of experience in releasing and removing federal and state tax liens. The attorneys, accountants and Enrolled Agents at Coast One Tax Group can help you to negotiate with the IRS or the state to resolve your federal or state tax issue! Call, text or email us today to find out how we can help you!
If you owe $10,000 or more in back taxes to the State or IRS, the team of tax experts at Coast One Tax Group is here to help.