Given my background as a former IRS Revenue Officer (25 years) I can assure you that the IRS is more than happy to allow the house to be sold. It saves the IRS the expense of Seizure and Sell of the property. The only thing the IRS and NCDOR for State Certificates of Lien require is that the seller who owes money to the IRS and State not walk away with money that the IRS & State should have received.
So the taxpayer owes money to the IRS & State, say $100,000 to IRS and $50,000 to the State. They also own a home worth $450,000. I will explain exactly what the IRS and State will get in each of the following circumstances:
1. Taxpayer sells and owes the bank $100,000. In this case the IRS and State will both get full-paid. The house will sell for $450,000, the bank gets its $100,000 first (its mortgage is recorded first), closing cost are paid ($10,000) and then the equity ($340,000) is paid over: $100,000 to IRS, $50,000 to State and $190,000 to the seller.
2. Taxpayer sells and owes the bank $450,000(short-sale) In this case there is no equity for the IRS or the State. The IRS and State would require paperwork showing its a legitimate third party sale (appraisal, contract, closing statement, etc) but otherwise will provide a Certificate of Discharge of Property from Federal Tax Lien, as well as the State, so the buyer can get a clear title. The IRS & State only want what it should have gotten from the equity, and if there is none it will not stop the sale from proceeding. Remember the IRS & State's goal is to collect from the assets and income of the taxpayer who owes money. If there is nothing to collect the IRS & State will not kill a sale from going forward.
3. Taxpayer sells and owes the bank $325,000. Here there is $115,000 remaining equity after closing cost and mortgage being paid. The payout to the IRS & State will be determined by the assessment dates of each lien. Once this is determined the IRS & State will issue the issue the appropriate lien release or discharge of property from lien.
All these scenarios are ones I routinely dealt with as a former Revenue Officer and now as a Certified Tax Representation Consultant. It is critical that this be worked out with the IRS & State in advance of the closing. As soon as your client has a contract it is time to get working on the tax lien issue, as these can take several weeks to work out. And the best part is we get paid from the closing so there is no upfront out of pocket cost to your client.
If you have any questions about IRS/State tax liens or any other IRS issue please feel free to contact me at (828)781-9412 or email@example.com.
Sue M. Hinson, EA, CTRC
Entente Tax Solutions
421 Gardner Point Drive
Stony Point, NC 28678
Thank you for your comments. The IRS is only watching if collection is actively being pursued. Homeowners could have an installment agreement and/or be in currently not collectible status and just want to sell the home or refinance. There is an estimated 75 million taxpayers in collection at this time. There are many options available to taxpayers to resolve their tax issues with the IRS.