Can You Sell a House Under a Federal Tax Lien?

If you get behind in your income tax payments, the Internal Revenue Service (IRS) branch of the federal government has the right to file a tax lien against any and all personal and real property. It can do so using IRC 6323 (f). You may or may not receive notification of their doing so. If you plan to sell your house, you may need to reconsider if it is under a Federal Tax Lien.

What Is A Federal Tax Lien?

A lien is the right to hold the property of another as security for a loan. In the instance of a tax lien, the property of the individual owing taxes is held against the amount of money owed for the taxes. It may or may not equal the value of the property. The IRS cannot recover more than the amount (plus interest) due them. Yet, while the IRS cannot claim the entire property, it is an encumbrance against remortgaging or the sale of the property. Simply put – you cannot sell the house.

Steps The IRS Must Take

The IRS has a procedure they follow before filing a Federal Tax Lien. It is simple.

• Ascertain how much the individual owes
• Send him or her a Notice of Demand for Payment – this is followed by a 10 day period
• If there is no response, file a Federal Tax Lien

The IRS will not necessarily notify you about the lien. You can find out if a lien is in place. Check the County Records, hire someone to do a lien search or ask your real estate firm or agent to perform one.

Options And/Or Exemptions

If you wish to sell the house, there are several options possible. These include:

• Settling the debt –pay the IRS what they want
• Upon receiving notice of the debt and understanding the consequences, appeal the filing. You will have a hearing
• Ask them for a Certificate of Discharge. If granted, you can sell the house.

The IRS may also allow you to sell the house under other circumstances.

• If the mortgage lien on the house is senior to the Federal Tax Lien
• If the individual has enough equity in other assets
• If the individual can substitute another asset or other assets for the house

Consult an Experienced Tax Attorney

The most common method used to free the house for sale is Certificate of Discharge. A knowledgeable tax attorney will understand if this is the right method for you.