GIven that the focus of my practice is civil and criminal tax repressentation, tax liens are something we deal with frequently. The refrain "I would love to sell my house but there is a tax lien" is one we hear so much it makes me nuts.
The reality is this: you can absolutely sell the house. The IRS will be more than happy to allow the house to be sold. The only thing the IRS requires is that the seller who owes money to the government not walk away with money that the IRS should have received.
So if the taxpayer owes money to the IRS, say $100,000. They also own a home worth $400,000. I will explain exactly what the IRS will get in each of the following circumstances:
- Taxpayer sells and owes the bank $100,000. In this case the IRS will get full-paid. The house will sell for $400,000, the bank gets its $100,000 first (its mortgage is recorded first), closing costs are paid (say $10,000) and then the equity ($290,000) is paid over: $100,000 to the IRS and $190,000 to the seller.
- Taxpayer sells and owes the bank $450,000 (short-sale). In this case there is no equity for the IRS. The IRS would require paperwork showing its a legitimate third party sale (appraisal, contract, cliosing statement, etc) but othewrwise will provide a release of its tax lien so the buyer can get clear title. The IRS only wants what it should ahve gotten from the equity, and if there is none it will not stop the sale from proceeding. Remember, the IRS's goal is to collect from the assets and income of the taxpayer who owes money. If there is nothing to collect the IRS will not kill a sale from going forward.
- Taxpayer sells and owes the bank $325,000. Here there is $65,000 remaining in equity after cloising costs and the mortgage being paid. The IRS would provide a lien release upon receiving certified funds of $65,000.
All of these scenarios are ones we deal with routinely, and what is critical is that this be worked out with the IRS Technical Advisory Group (also called the "Lien Unit") in advance of the closing. As soon as your client realizes they have a buyer and a contract it is time to get the tax attorney working on the tax lien issue, as these can take several weeks to get sorted out.
If you have any questions about IRS tax liens or any other IRS issue, plerase feel free to contact me at (203) 285-8545 or egreen@gs-lawfirm.com.
Eric L. Green
Green & Sklarz LLC
700 State Street, Suite 100
New Haven, CT 06511
Ph. (203) 285-8545
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