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www.ctcpas.org
One basis for issuing a certificate of
discharge is to show that the govern-
ment's interest in the specific property
is valueless. In this case, for example,
the IRS interest is valueless because
the property is underwater and the
bank has priority over the IRS in its
sales proceeds.
A second basis for issuing a certificate
of discharge is to pay the IRS at least
an amount equal to the IRS interest in
the specific property. To illustrate, as-
sume your clients' property is worth
$250,000 instead of the $150,000
stated above. Ordinarily, a prospective
buyer would have to take the property
subject to the IRS lien of $100,000,
and this would kill the deal. But if your
clients agreed to pay the IRS at least
$50,000 (the IRS interest in the prop-
erty: $250,000 fair market value minus
the $200,000 owed to the bank), then
the IRS could discharge the tax lien for
the specific property, and a clear title
could transfer.
Release and Withdrawal
The tax lien may only be released
with full payment of the tax liability.
Tax liens may elapse and self-release,
meaning the Notice of the Federal Tax
Lien (NFTL) lists a date on which the
federal tax lien is released unless the
IRS re-files the NFTL. This can present
a problem. For example, suppose your
clients' NFTL listed May 1, 2015 as
the date for self-release. In 2016, your
clients are ready to buy a new house.
The bank will not accept the date list-
ed on the NFTL as proof of the release
and has required a certificate explicitly
stating the lien has been released. In
the past, the IRS would not have is-
sued a certificate on the basis that the
NFTL was sufficient proof of the re-
lease. Now your clients can submit a
request for a certificate of release, and
the IRS can issue one.
Even better, you clients may qualify
for a withdrawal of the federal tax lien.
The following analogy illustrates the
difference between a release and a
withdrawal of the lien: a release is to a
divorce as a withdrawal is to an annul-
ment. A withdrawal will be treated as
if the tax lien had never been filed and
provides the benefit of avoiding the
negative impact on credit scores that
a release does not provide.
Your clients could request a withdraw-
al if they have satisfied three require-
ments. First, they must have satisfied
their tax liability. Second, for the past
three years they must have been com-
pliant in filing all individual, business,
and informational returns. Finally, they
must be current on making estimated
tax payments and federal tax deposits.
There is also a second way to request
a withdrawal of the tax lien if your cli-
ents have not fully paid their tax liabil-
ity. If they owe the IRS $25,000 or less,
then they can enter into a Direct Debit
Installment Agreement and request a
withdrawal of the lien.
A Direct Debit Installment Agreement
is an agreement with the IRS which al-
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