Paying off an IRS tax lien at a Texas real estate closing should satisfy the IRS but it isn’t that simple. To qualify for the removal of a tax lien at a real estate closing, you must complete the IRS application and substantial documentation such as deeds, appraisals, valuations, title reports, and closing statements. Find out why paying off the lien does not allow a real estate closing to go through and which parts are specific to Texas.
Where Are Federal Tax Liens Filed?
The IRS files a Notice of Federal Tax Lien in the Texas county where the real estate is located. When a title company performs a title search for the real estate closing, they will research the county records in Texas. If a federal tax lien is discovered the closing will stall as a title company is not allowed to close on a property without clear title. The next step is to request the removal of the lien with the IRS.
How To Save a Texas Real Estate Closing
The owner of the Texas property can revive the closing by filing for an IRS tax lien discharge. Just paying off the lien is not an option, because the IRS has to file a release of lien to remove the lien from the property after payment. The lien release will not be processed in time to save any earnest money or deposits placed on the property. The tax lien discharge is specifically written in the tax code to allow a real estate transaction to go through when there is a lien on the property.
IRS Form 14135, Application for Certificate of Discharge of Property from Federal Tax Lien will need to be submitted to the IRS. The seller can complete the application or they can contact a tax professional. It is important to note the IRS authorizes certain tax professionals to represent the seller in the application for the discharge. The professional can be a Certified Public Accountant, Attorney, or Enrolled Agent.
The IRS will consider discharging the tax lien for the following conditions:
- The value of the remaining properties in the seller’s name is twice the liability of the IRS tax lien.
- The equity from the sale of the Texas real estate will pay off the lien or will partially pay the lien
- The Texas real estate has no value left after it closes so the IRS will not be able to collect on the lien.
- Proceeds from the property sale are in dispute and another lienholder has a claim to funds from closing.
As you may notice, paying off the lien with cash prior to closing is not an option. Paying off the lien requires filing a lien release in the Texas county of record which adds to the processing time. If the IRS approves the lien discharge, they will issue a conditional commitment to discharge or a certificate of discharge to allow the real estate closing to go through.
What Happens After The Closing?
Just because the IRS allows a Texas real estate transaction to go through, it does not mean the lien disappears. If any of options on Form 14135 does not pay off the federal tax lien balance, the IRS will attach the remaining balance of the lien to the seller’s remaining property or to the property owner itself. The Texas county clerk will file a new Notice of Federal of Tax Lien document for the remaining tax lien value.
Do You Need Assistance Now?
As noted above, the IRS authorizes three groups of tax professionals to represent a taxpayer when applying for tax lien discharge. As a Texas Certified Public Accountant, I can represent any client needing assistance with Form 14135 for a Texas real estate closing. Any incomplete or incorrect documentation can delay closing. I have worked with title companies and tax liens for over 15 years and understand the urgency needed to protect the closing timeline. Contact me to protect your Texas real estate closing today!
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