When a homeowner does not pay a tax debt, the Internal Revenue Service (IRS) may impose a tax lien on the taxpayer’s property. The tax lien can have a negative impact on the individual taxpayer and the community. A tax lien gives the federal government a right to the property or money from the sale of the property before anyone else. Additionally, the IRS can seize and sell this property, making it difficult for property owners to manage their property.
The problem for the taxpayer is that a lien prevents owners from selling their property and makes it difficult for them to refinance their mortgages. As a result, the owner may have to pay high interest rates, may not be able to sell a home, and the likelihood of foreclosure increases. For the community, foreclosures decrease the value of nearby homes, discourage spending in the surrounding area, and contribute to other problems associated with vacant and abandoned property.
People struggling with tax debts and who may already have tax liens on their property, have options to address the situation. First, a taxpayer can complete the IRS’s application for a Certificate of Subordination of Federal Tax Lien. This makes the federal government’s interest in the property come after other creditors, such as the bank that holds the mortgage. The successful completion of this application could make refinancing a mortgage possible for a property owner. Refinancing can reduce the owner’s monthly mortgage payments.
Second, a taxpayer can request that the IRS discharge a tax lien, which can allow the sale of property. Though a discharge does not eliminate the lien altogether, it does remove the lien from the specific property being sold and places a lien on other property the taxpayer may own. Property free from liens is much easier to sell.
Finally, a taxpayer that cannot afford to pay tax debt may qualify for an “Offer in Compromise” (OIC). An OIC is an attempt to settle tax debt with the IRS for less than the amount that is actually owed. If the IRS accepts the settlement offer, the taxpayer’s debt — along with liens on property — will be eliminated.
If you have a problem with the IRS, call 1-888-817-3777 to find out if you are eligible for help from Legal Aid’s Low Income Tax Payer Clinic.
By Frank George