Certificate of Discharge of Property from Federal Tax Lien


Did you know that even if you have a Federal Tax Lien and you owe more than your house is worth, you still may be able to proceed with the short sale of your home?

What in the world is a Federal Tax Lien?

The Internal Revenue Service will file a Federal Tax Lien if, after it assesses a tax liability against a taxpayer, the taxpayer fails to repay the liability in a timely manner. A Federal Tax Lien attaches to all of a taxpayer’s assets, including real estate.

Ok.  What in the world is a short sale?

A short sale means that you owe more to the bank then your house is worth.  If you want to sell your home, you must then ask permission from the bank to sell your home.

Pursuant to IRS Publication 783 the IRS may discharge specific property from a Federal Tax Lien. The taxpayer’s assets remain subject to the Federal Tax Lien; however, the specific property is discharged thereby allowing the taxpayer to convey title.

In December 2008 IRS issued IR-2008-141, which announced that IRS will commence an expedited process to consider applications for certificate of discharge of property from a Federal Tax Lien. The IRS has acknowledged that many taxpayers are struggling financially; that many taxpayers own homes that are now worth less than the amount that they owe. IRS intends this process to assist taxpayers who wish to sell their homes that are currently subject to a Federal Tax Lien.

What documents do I need to make this happen?

To apply for a discharge you must complete IRS Form 14135 Application for Certificate of Discharge of Property from Federal Tax Lien and provide the following information:

  1. Legal description of the property
  2. Copy of the real estate contract
  3. Copy of the Federal Tax Lien
  4. Copy of the title report
  5. Two appraisals
  6. Copy of an estimated closing statement (HUD-1)
  7. Copy of escrow agreement, if any.

When you have completed the application, you need to submit the documents to either the local IRS Revenue Officer assigned the file or to the appropriate IRS Collection Advisory Group. See IRS Publication 4235 for Collection Advisory Group addresses.

The process is not for the faint of heart.  You should really hire a professional to help you

Once you submit the application, you must follow up with IRS to ensure that the file is assigned to an IRS agent in a timely manner; otherwise, the file may sit inactive for a period of time, which could jeopardize the pending short sale. If the Collection Advisory Group is not responding to your inquiries then you must consider filing a request for Taxpayer Advocate Service (TAS) to intervene to expedite your application for discharge. To request TAS to intervene you must submit IRS Form 911. A TAS officer will be assigned quickly and will assist you in expediting the application process.

Do not let the existence of a Federal Tax Lien prevent you from pursuing a short sale. IRS offers a procedure to facilitate the completion of short sales; however, the IRS bureaucracy can impede your efforts if you passively submit the application. To obtain a certificate of discharge requires aggressive participation to ensure a successful result.

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