Tax lien on rental

[appelman]

A client is negotiating a short sale of rental property on which there is a tax lien. What is the chance of getting the lien released or subordinated? And which is the better route, and are there any tricks or subtleties?

[DaveO]

I’m guessing this is an IRS tax lien, not a property tax lien. Will the proceeds of the sale be enough to satisfy the lien? If so you will need to contact the IRS and notify them of the upcoming sale. You will need to document the sale, the mortgage, closing costs and other expense and provide them a worksheet showing the proceeds. Get the payoff amount calculated to the closing. Notify the banker of the lien subordination issue and that they will need to send the agreed upon funds to the IRS. Generally the IRS will contact the banker and provide them instructions. If an IRS agent has been assigned to the collections it will go much smoother. If you have a local office you can request it be transfered there.

[appelman]

Not on a short sale

Everything goes to the bank; nothing for the IRS.

[DaveO]

Ouch! I've not had one of these before but I can't imagine the IRS can maintain a lien on property in which there is no equity. Can't see why the same information set and process would be different. Good luck.

[Roberts]

If you were the IRS, would you release the tax lien if the taxpayer hasn't come up with a plan to eliminate their tax burden outstanding?

[appelman]

Sorry, I should have added...

Taxpayer has a working, non-defaulted, installment agreement in place.

[Roberts]

Taxpayer has a working, non-defaulted, installment agreement in place.

If that's the case, contact the IRS and they'll very likely remove the lien if they see that the short-sale isn't removing income or assets that will be detrimental to sustaining the installment agreement. Since it's a short sale it's likely increasing their ability to sustain the agreement.