As a property owner you have many obligations. If one of these involves having a Notice of Federal Tax Lien filed against your property, the IRS has some important tax information for you.
You may have to submit one of two application forms with the IRS, depending on your lien situation. To help you understand the process, we’ll go line by line through the forms, giving you tips and telling you how to avoid errors along the way.
First, the critical question:
Are you selling, refinancing, or using your property as collateral for a loan that won’t fully pay your tax debt?
If you answered “Yes” to this question, you need to apply to the IRS for what we call a discharge or subordination.
What is a discharge or subordination and how can it help me sell or refinance my property? Discharge means the IRS removes the lien from property so that it may transfer to the new owner free of the lien. Use Form 14135. Subordination means the IRS gives another creditor the right to be paid before the tax lien is paid. Use Form 14134.
We will not be talking about the estate tax liens here. If you need help with these, please refer to Form 4422 if selling, or Publication 1153 if refinancing. Nor will we discuss Purchase Money Mortgages. For information on this topic, please go to Publication 785.
Now let’s get started. Your application for discharge or subordination will be handled on a first come, first served basis.
Here’s our first important tip…
You need to get your discharge or subordination application to the IRS at least 45 days before the sale or loan settlement meeting. If the Notice of Federal Tax Lien is discovered late, your sale or loan could be delayed.
You need to include the documentation for your settlement meeting with your application.
This brings us to our second tip…
Not only is it important to answer the questions on the application form, but also to attach readable copies of the documents requested. Incomplete applications will delay the IRS decision. We’ll discuss where to mail your paperwork later.
By the way, if you are trying to avoid foreclosure, be sure to indicate this on your application and the IRS will do its best to expedite your request. The IRS will review your application based on the specific facts of your situation and the law, and contact you if there are questions.
Ok. Let’s look at the application forms you’ll need, if you’re applying to the IRS for a discharge or subordination. It may be helpful at this point to download from IRS.gov or have a copy of the forms 14135 or 14134 to follow along.
To help you with the application process, you will need Publication 783 or 784, which contain instructions on filling out the forms, have the application forms themselves, along with FAQ’s.
Sections 1, 2, and 3 of either the discharge form 14135 or the subordination form 14134 are self-explanatory. If you are using a representative, fill in section 4, and be sure to indicate who is being represented.
Here’s another tip:
While having a representative is not required, if you hired someone to represent and speak on your behalf, attach Form 2848. Both of you must sign this form.
If you want the IRS to share your information with someone else, you would attach Form 8821. If you are attaching one or both of these forms, check the “yes” box in section 4.
In Section 5, you would fill in the contact information for your finance company.
The information in Section 6 will vary depending on the type of transaction.
If you are selling, use form 14135 and enter the sales price. If you are refinancing or getting a loan, use form 14134 and enter both your existing and new loan amounts.