A discharge is when you ask the IRS to remove a federal tax lien from a specific piece of property. To apply, you should file Form 14135 and explain why you want the tax lien discharged. Keep in mind that the IRS only discharges liens if you meet strict criteria, and you need to complete this form correctly if you want to be successful.
To get help now, contact us at Damiens Law today. We help our clients find the best resolutions possible for their unique tax problems. Otherwise, keep reading to learn more about the process.
How Does a Tax Lien Discharge Work?
A discharge is when the IRS removes a tax lien from a specific piece of property. For example, imagine that there is a lien against a vacant piece of land that you own, and you want to use the land as collateral so that you can take out a loan to pay off your taxes. To get a lender to approve the loan, you may need the IRS to discharge the lien.
Reasons to Discharge a Tax Lien
There are several situations where you may want to request a tax lien discharged. Generally, the IRS will only agree to discharge a lien if it improves the IRS’s ability to collect the tax debt. Here are the main reasons that the IRS will discharge tax liens:
- You want to take out a loan against the property to pay off your tax bill, but the lender will only let you use the asset as collateral if the IRS discharges the lien.
- You want to refinance an existing loan so that you can afford to make monthly payments on your tax debt.
- You need to sell the property, and you agree to pay the IRS the proceeds of the sale up to the value of the lien.
- You need to sell or transfer property, and there is no value for the IRS to claim.
You may also be able to get a lien discharged from a specific piece of property if your remaining property is worth at least twice as much as the value of the lien.
How to Discharge a Tax Lien Using IRS Form 14135
When you apply for a lien discharge using Form 14135, you must note the part of the tax code that applies to your request. Here are the options:
- 6325(b)(1) — You may be able to remove the lien from some of your property if your remaining property is worth at least twice as much as you owe. To get approved, you don’t have to make a payment, but you must establish the value of your other property.
- 6325(b)(2)(A) — The IRS agrees to discharge the lien if you make a payment equal to the IRS’s interest in the asset. To get the discharge certificate, you must submit proof that you have been divested of the title, plus a copy of the final settlement statement.
- 6325(b)(2)(B) — You prove that the property doesn’t have any value. To get the discharge certificate, you must show that you have been divested of the title and include a final settlement statement.
- 6325(b)(3) — You need a discharge so that you can sell the property, but you agree to have the funds you owe the IRS put into an escrow account. To get a discharge certificate, you must prove that the funds are in the escrow account. You must also show the claim amounts and priorities of any other creditors. You can deduct reasonable expenses incurred due to the sale from the amount that you pay the IRS.
- 6325(b)(4) — You make a deposit or purchase a bond equal to the value of the tax lien. If you own the property but are not the taxpayer, you may be able to request a refund of the deposit/bond in certain situations.
As indicated above, in some cases, you may need to make a payment, but you shouldn’t send the payment with this form. The IRS will let you know how much you owe once everything has been completed.
How to File: Form 14135 Instructions
When filling out this form, it’s important to note that it can be completed by taxpayers or other parties requesting a lien discharge. If you’re the taxpayer, you should put your details in the taxpayer information section, and then you should also note that you are the taxpayer in the applicant information section.
If you’re not the taxpayer, you should fill out section one with the taxpayer’s information and section two with your information. Section three is for the person who’s buying or receiving the property, and you must note their relationship to the taxpayer. In section four, you should list details about your attorney or representative if applicable.
In section six, note the proposed sale price of the property and the proceeds you expect to pay to the IRS. Here’s an example, say you’re selling a property for $100,000, and you owe the primary lender $100,000. In this case, you would note the sale price as $100,000 and $0 to be paid to the IRS.
Section seven asks why you’re applying, and you should select one of the reasons noted above. Form 14135 has a written description of the reasons for IRS tax lien discharge as well as the legal code that corresponds to each reason. Finally, you need to write a description of the property and include its address.
Documents to Attach to Form 14135
If you’re requesting a discharge from real estate, you need to attach a copy of the deed or title when you file Form 14135. If you’re applying for a discharge because your remaining property is worth more than twice what you owe, you need to include deeds or titles to all of your remaining property.
You should also attach an appraisal completed by a disinterested third party, and one of the following 1) a county valuation of real property, 2) an information valuation by a disinterested third party, or 3) the proposed sale price of the property going to auction. You may attach other valuation documents if they substantiate your request.
What to Expect When You Apply
An IRS advisory staff member will review your request and verify the details on your application. They may contact you or anyone related to the transaction as needed for additional information. Once they make a decision, they will notify you, and if your request is approved, they will send you the discharge certificate.
FAQs About Discharging IRS Lien Interest
Using Form 14135 to request a lien discharge can be confusing, and most taxpayers have a lot of questions. Here are answers to some of the most commonly asked questions
Can you discharge a federal tax lien to sell your home?
In this situation, you can apply based on IRC 6325(b)(2)(A) or (B). If you earn money on the sale, you will generally need to apply under subsection A and make a payment to the IRS. Section B applies if you don’t earn any money on the sale and thus cannot make a payment to the IRS.
If you’re selling your home, you should also file Form 12451 (Request for Relocation Expense Allowance). This allows you to deduct some of your relocation expenses from the proceeds of the sale, and it reduces the amount you need to pay to the IRS.
What is the difference between a tax lien subordination and a discharge?
Subordination is when the IRS agrees to let its lien take a lower priority than another entity’s lien. A tax lien discharge is when the IRS removes the lien from a certain piece of property. A tax attorney can let you know the best way to deal with a federal tax lien in your situation.
What is the difference between a discharge and a lien withdrawal?
A discharge is when the IRS removes a lien from a specific asset. A withdrawal is when the IRS removes the lien completely. You can apply for a discharge, but you usually need to pay the full balance to get the lien released and withdrawn.
How long does it take to file Form 14135?
According to the IRS, it should take about 7 hours and 40 minutes to file Form 14135. This is two hours and 45 minutes for record keeping, two hours to learn about the law, 90 minutes to complete the form, and approximately 85 minutes to make copies and send the form to the IRS.
When should you file Form 14135?
If you’re trying to sell property or apply for a loan, you should file this form at least 45 days before the closing date. If you apply later, the IRS may not be able to process your application in time.
Can you discharge an estate tax lien?
To request a discharge related to an estate tax lien, file Form 4422 (Application for Certificate Discharging Property Subject to Estate Tax Lien). Keep in mind that Form 14135 is for federal income tax liens.
Get Help Discharging a Federal Tax Lien
Need to discharge a lien so that you can sell, transfer, or borrow against your property? Then, you may need to file Form 14135. Wondering if this is the best option for your situation? Then, it’s time to schedule a consultation with a tax attorney.
At Damiens Law, we provide customized tax resolution services, and we’re committed to helping our clients deal with the IRS as efficiently as possible. We can also help you deal with state tax liens. To learn more, contact us for a free consultation today.