Selling a Home With an IRS Tax Lien?
Are you selling your home with an IRS tax lien attached to it? Good news! The IRS will consider several circumstances to discharge the lien and allow you to sell your home. To apply for a certificate of discharge from the federal tax lien, complete and submit IRS Form 14135.
IRS Tax Lien Discharge Definition
An IRS tax lien discharge is the process of removing a federal tax lien from a specific piece of property. The official application for discharge is completed on IRS Form 14135 – Application for Certificate of Discharge of Property from Federal Tax Lien. After Form 14135 is submitted and the application for discharge is approved, the original federal tax lien is still enforceable for the outstanding lien amount remaining. This is the difference between a tax lien withdrawal and tax lien discharge. The discharge is used when a property under the tax lien is in the process of being sold. The IRS allows the property to close and will remove the lien from the property if the IRS is satisfied it will be able to collect the remaining lien amount or the property being sold has no value and the IRS cannot collect payment from the closing. There are three main options as listed on Form 14135 the IRS will consider to discharge the federal tax lien.
IRS Form 14135 Option 1 – Property Double the Amount of the Liability, IRC 6325(b)(1)
If the remaining property of the taxpayer has a fair market value that is double the sum of the amount of the federal tax lien plus other encumbrances (e.g. liens senior to the IRS tax lien), the IRS will consider the discharge. A taxpayer who has multiple properties or assets can use this option to discharge the tax lien. The IRS will issue Form 669-A, Certificate of Discharge of Property from Federal Tax Lien Under 6325(b)(1). Since no payment is required if this option is approved for the tax lien discharge, the certificate of discharge is the only item the IRS will submit for the closing to proceed.
IRS Form 14135 Option 2 – Part Payment, IRC 6325(b)(2)(A)
The federal tax lien can also be discharged if the IRS lien is partially paid by the proceeds from closing. The proceeds have to be no less than the IRS lien interest in the property. After the encumbrances and settlement costs are deducted from the selling price, the amount remaining is the IRS lien interest. There is confusion sometimes on this option because of the phrase “no less than the IRS lien interest in the property.” This means the IRS must receive the calculated remaining proceeds or interest due to the IRS, no less. To qualify the taxpayer must be divested of all interest in the property after the transaction. Under this option, the IRS will issue Letter 403, Conditional Commitment to Discharge from Federal Tax Lien (Value) and Form 669-B, Certificate of Discharge of Property from Federal Tax Lien Under Sec 6325 (b)(2)(A). The amount that is due to the IRS should not be sent with the application. The IRS Advisory Group Manager will notify you of when to send payment.
IRS Form 14135 Option 3 – No Value, IRC 6325(b)(2)(B)
Select this option on Form 14135 if it is determined that the interest of the United States in the property to be discharged from the lien has no value. To qualify the taxpayer must be divested of all interest in the property after the transaction. This option applies to short sales or when the senior lien holder agrees to accept less than the total amount owed as satisfaction for its lien claim. There is no payment due to the IRS. There IRS will issue Form 669-H, Certificate of Discharge of Property Form Federal Tax Lien Under Sec 6325(b)(3).
Documents, Attachments, and Timeline
As you would expect, an IRS tax lien discharge application requires substantial documentation. Depending on which option you qualify for, you may have to submit any of the following:
- Description of property
- Copy of the deed or property titles
- Professional appraisals and valuations
- Copy of federal tax liens
- Sales contract/purchase agreement
- Current title report
- Proposed closing statement
You must submit your application Form 14135 at least 45 days before the transaction date the certificate of discharge is needed. Doing so will allow sufficient time for review, determination, notification and the furnishing of any applicable documents needed by the IRS Advisory Group by the transaction date.
Ready to Submit Form 14135 to the IRS Advisory Group?
Navigating the strict appraisal requirements and the 45-day submission deadline requires absolute precision. Even a minor error in your property’s legal description can result in an immediate IRS rejection, causing your real estate closing to completely collapse. As a licensed Certified Public Accountant, I am fully authorized to represent taxpayers nationwide directly in front of the IRS. From pulling official tax transcripts to executing and tracking the Form 14135 application, my firm handles the entire process so you can get your closing back on track.
Submit your details below for a confidential review. Since property transactions are time sensitive, all submissions are reviewed the same day with a same day response.
Download Form 14135 directly from the IRS.
IRS Tax Lien Discharge FAQ
How can I close on a piece of property that has a federal tax lien?
You must obtain an official conditional discharge commitment from the IRS Advisory Group before closing rather than attempting an informal payoff. The title company uses a IRS conditional commitment letter to prepare the settlement statement and wire the designated sale proceeds directly to the IRS at closing. Once closing funds and the signed settlement statement are delivered to the IRS, the government issues the recorded Certificate of Discharge to convey clear title.
Is there a workaround that allows closing on property encumbered by a federal tax lien?
No informal workarounds exist. Closing without addressing the lien creates an uninsurable title defect. However, the Internal Revenue Code provides legal remedies depending on the transaction such as applying for a partial discharge to clear the specific parcel being sold, entering into an escrow agreement if lien priority or payout amounts are disputed, or applying for lien subordination if you are refinancing rather than selling.
Can you buy a house with an IRS lien on it?
Yes, but you should never proceed to closing without an IRS discharge because a recorded federal tax lien attaches to the real estate itself and remains with the property after purchase. Your title examination must verify the lien, and the title company must ensure the seller obtains an IRS conditional commitment letter (such as Letter 403) so the lien is formally discharged from that parcel upon disbursement of closing funds.
What process is required to get the IRS to release a lien on a real estate closing?
The IRS does not release the underlying tax debt at closing unless it is paid in full. You must apply to discharge that specific parcel of real estate under IRC § 6325(b). You submit IRS Form 14135 along with the sales contract, preliminary title report, appraisal, and draft settlement statement to the IRS Advisory Consolidated Receipts Group at least 45 calendar days before closing. Once approved, the IRS issues a conditional commitment agreeing to discharge the property upon payment of the agreed sale proceeds.
What is IRS Letter 403 (Conditional Commitment to Discharge)?
IRS Letter 403 is the official written agreement from the IRS Advisory Group confirming it will discharge its federal tax lien from the specific property being sold. It provides the title company with the exact payoff amount required from closing proceeds, payment remittance instructions, and an expiration date. After the title company disburses the funds, the IRS issues the formal recorded Certificate of Discharge (Form 669-B).