When taxpayer’s come into my office in Richardson, TX related to IRS tax debt problems, IRS Liens are often the major issue they are working to resolve, and taxpayers want to know how to get rid of an IRS lien.
There are two types of IRS liens:
- General or “Silent Lien” which is automatic by statute. No one including the taxpayer is notified.
- A Notice of Federal Tax Lien (NFTL) which is publicly filed
The NFTL is what causes pain to the Taxpayer, harming their ability to access credit and transfer assets. When an IRS lien is filed, in most cases, unless the tax debt is paid off, the lien remains. However, in some cases, the IRS will be willing to subordinate their position in the lien.
What is a “subordination”? A subordination is where the IRS will allow another creditor to take a higher priority position over the IRS lien. You may be thinking “Why would the government agree to let another creditor take their position”? In certain cases, it can make sense to the IRS, particularly, where doing so, will either:
- Allow the taxpayer to partially pay the debt or
- To improve collection.
Let’s start with an example of partially paying the debt. In this example, let’s say a taxpayer, Bob, owes the IRS $100,000 and that if they can get their debt amount down to $50,000, they will qualify for a streamlined installment agreement. If Bob’s parents agree to lend Bob the $50,000, and that loan will be used to pay down the IRS debt by $50,000, the IRS will most likely agree to give the parent priority position for the amount of the loan plus interest, in exchange for the cash. It’s in the governments best interest.
An example for improving collection might be a refinance of a mortgage at a lower interest rate. Even if there is no cash-out to the government, if the refinance will reduce the taxpayer’s monthly mortgage payments and will put the taxpayer in a position to increase their monthly payments to the IRS, the IRS will most likely be willing to subordinate their position in that loan to improve collection.
To subordinate the tax lien, you would complete IRS Form 14134. When submitting the form, it is important to make your pitch and to tell the government why the subordination is in the best interest of the government.
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