The Internal Revenue Service plans to make it easier for financially troubled homeowners to avoid federal tax liens that block them from selling their homes or refinancing their mortgages.

The IRS noted that taxpayers facing a lien from the IRS already have some options. Taxpayers or their representatives or lenders can request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring the loan. This is known as a lien subordination. Taxpayers or their representatives can also request that the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.

The process to request a discharge or a subordination of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS said it will now work to speed those requests in the wake of the economic downturn.

"We don't want the IRS to be a barrier to people saving or selling their homes," said IRS Commissioner Doug Shulman (pictured) in a statement. "We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes."

To apply for a certificate of lien subordination, taxpayers or their representatives must follow the directions in Publication 784, "How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien." To apply for a tax lien discharge, applicants must follow the directions in Publication 783, "Instructions on How to Apply for a Certificate of Discharge of a Federal Tax Lien."

The IRS also urges people to contact the agency's Collection Advisory Group early in the home sale or refinancing process so it can begin work on their requests. Currently, there are more than 1 million federal tax liens outstanding tied to both real and personal property. The IRS issues more than 600,000 federal tax lien notices annually.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access