In my practice of tax representation in Rochester, New York, tax liens are something we deal with quite frequently. Most people believe they can not sell their house but because there is a tax lien. But they could not be further from the truth.
The truth is you can absolutely sell the house. The IRS will be more than happy to allow you to sell the house. The only thing the IRS requires is that the seller who owes money to the government NOT keep the money that the IRS should have received.
For example, if the taxpayer owes the IRS $50,000 and they own a home worth $200,000 with a mortgage balance of $100,000. Here is exactly what the IRS will get in each of the following circumstances:
1. Taxpayer sells and owes the bank $100,000. In this case the IRS will be full-paid. The house sells for $200,000, the bank gets its $100,000 first (the mortgage is recorded first), closing costs are paid (for this example $5,000) and then the equity ($95,000) is paid over: $50,000 to the IRS and $45,000 to the seller.
2. Taxpayer sells and owes the bank $250,000 (a short sale, sold for less than they owe the bank). In this scenario the equity for the IRS is $0. The IRS requires paperwork showing its a legitimate third-party sale (appraisal, contract, closing statement, etc.) and will provide a release of the IRS tax lien. Now the buyer has a clear title. The IRS only wants what it should have received from the equity, since 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 the money. If there is nothing to collect the IRS will not stop the sale.
3. Taxpayer sells and owes the bank $160,000. Here there is $35,000 remaining in equity after closing costs and the mortgage being paid. The IRS would provide a lien release upon receiving certified funds of $35,000.
All of these scenarios are ones we deal with routinely, and it is critical that this be worked out with the IRS Technical Advisory Group (known as the “Lien Unit“) prior to the closing. As soon as you or your client realizes they have a buyer and a contract it is time to get the tax specialist 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, please feel free to contact me at (585) 210-7405 or jasonzukoski@integratedtaxresolutions.com .
Jason Zukoski
Integrated Tax Resolutions
395 Helendale Rd.
Rochester, NY 14609
Ph. (585) 210-7405
jasonzukoski@integratedtaxresolutions.com
www.integratedtaxresolutions.com / www.585tax.com.